Clause 4

Budget Responsibility and National Audit Bill [Lords] – in a Public Bill Committee am ar 1 Mawrth 2011.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Amendment proposed (this day): 12, in clause 4, page 2, line 20, at end insert— ‘The Office shall also examine and report on the impact of Treasury policy on the duties of the Secretary of State under section 2 of the Child Poverty Act 2010.’.—(Chris Leslie.)

Question again proposed, That the amendment be made.

Photo of William McCrea William McCrea Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Home Affairs), Shadow DUP Leader of the House of Commons

I remind the Committee that with this we are discussing the following:

Amendment 13, in clause 4, page 2, line 20, at end insert—

The Office shall also examine and report on the impartiality of the local government finance settlement as it is applied across local authorities in England.’.

Amendment 8, in clause 4, page 2, line 20, at end insert—

Amendment 9, in clause 4, page 2, line 27, leave out ‘one occasion’ and insert ‘two occasions’.

Amendment 10, in clause 4, page 2, line 30, at end insert—

‘over the next five years.’.

Amendment 11, in clause 4, page 2, line 37, at end add—

Photo of Graeme Morrice Graeme Morrice Llafur, Livingston

May I add to the plaudits that we heard this morning with regards to your benevolent chairmanship, Dr McCrea?

I want to comment on amendments 12 and 13, tabled by my hon. Friends the Members for Bristol East and for Nottingham East. Amendment 12 places a duty on the Office for Budget Responsibility to examine and report on the impact of Treasury policy on the duties of the Secretary of State under section 2 of the Child Poverty Act 2010. I wholly concur with my hon. Friend the Member for Nottingham East, who moved the amendment. He said that if we are serious about making  a difference in society then there can be no better cause than the eradication of child poverty. To do that we must ensure that the targets and ultimate goal in the 2010 Act are met. As my hon. Friend the Member for Bristol East reminded us earlier, the current Government have yet to publish a national child poverty strategy, so there is nothing in place at the moment to ensure that the requirements of the Act are implemented. What would be better than a duty placed on the OBR to ensure that that happens?

As my hon. Friend the Member for Nottingham East so eloquently stated, it is important that we move away from the mindset of structures, processes and inputs that sometimes become the dominant force in much of what we do towards a culture of outcomes and putting people first. I say that in a non-partisan fashion as we can all be guilty of that, regardless of party politics. The important thing is to recognise it so that we make the changes to bring about the difference. On the basis of my positive outlook and reasoned argument, I am sure that the Minister will now discard her shackles, denounce her fetish and accept the amendments as tabled—or perhaps not.

Seriously, child poverty is a scandal. I recently met John Dickie, the head of the Child Poverty Action Group in Scotland. I was shocked to learn that despite the country’s undoubted wealth, a staggering one in four of our children live in poverty. The latest official statistics suggest that recent progress in reducing child poverty has stalled. I fear that with the Government’s deficit reduction measures, that situation will only get worse.

I have little doubt that we all agree with the objective of eliminating child poverty by 2020. That is vital to the well-being of the country and a true mark of a decent and civilised society. Why not give that objective the credibility that it deserves and place it firmly within the remit of the OBR?

Amendment 13 places a duty on the OBR to examine and report on the impartiality of the local government finance settlement in England. This is an important amendment due to the highly partisan nature of this issue, regardless, to be fair, of which Government are in power. With the abolition in England of the Audit Commission, which is a great mistake by this Government, there is now a significant gap in the independent, authoritative and impartial assessment of local government finance in England. That contrasts sharply with the situation in Scotland in which the Accounts Commission is highly regarded by both local and national Government and works well. With the abolition of the Audit Commission in England, it makes sense to place a duty on the OBR to conduct an impartial assessment of the English local government grant settlement, thereby greatly reducing the partisan rhetoric on this issue by all parties.

Finally, although it is not mentioned in the Bill as far as I can see, will the Minister address the proposed relationship between the OBR, which is a UK body, and the devolved Administrations, particularly the Scottish Parliament with its fiscal powers and those proposed by the Scotland Bill?

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I apologise for not being here for the very end of this morning’s debate—the hon. Member for South West  Norfolk and I attended a Westminster Hall debate. I regret missing the chance to serve under your stewardship for that half hour, Dr McCrea, and it also appears that I missed a fascinating debate about fetishes. I look forward to receiving the record, so that I can see how the issue was discussed.

I shall speak briefly to amendment 13, which centres on local authorities. I shall stay away from the issue of Scottish Ministers, because I fear that if I addressed that debate for too long, you would rule me out of order, Dr McCrea. I shall keep my thoughts on that until we get to the clause stand part debate.

The local authorities of England spend billions of pounds each year, despite the best efforts of the Secretary of State for Communities and Local Government to slash their budgets by 56%. Unlike many colleagues in this room, I have never had the privilege or honour of serving as a member of a local authority—some colleagues present have acted as leaders of councils and conveners. I would not, however, wish to be a councillor in the coming financial year, because incredibly difficult and painful decisions have to be made. I am sorry to dissent from the remarks of my hon. Friend the Member for Livingston, but the level of pain will be much worse under this Government than it would have been under a Labour Government, because of the Secretary of State’s heartless and callous decision to make brutal cuts to the funding of local authorities.

Photo of Graeme Morrice Graeme Morrice Llafur, Livingston

I totally concur with that comment.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful for that clarification.

Photo of Anne Marie Morris Anne Marie Morris Ceidwadwyr, Newton Abbot

I am absolutely fascinated by everything that the hon. Gentleman has to say, but I am concerned about its relevance. If the OBR took on all the duties suggested by the Opposition, it would not be focused and I am not convinced that it would do the job that we want it to focus on. I would appreciate the hon. Gentleman’s comments on that.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful for that intervention, and I might address the issue in a moment.

It is interesting that the well-known hard-left newspaper, The Times, which is owned by the Marxist revolutionary, Rupert Murdoch, made it clear a few weeks ago, just before Christmas, that the 10 local authorities in England that suffered the most brutal cuts were all Labour-controlled councils in the midlands or the north of England, while the councils that had the best settlement—indeed, one or two received a rise in their funding settlement—were all under Liberal and Conservative control in the south of England.

Photo of Alec Shelbrooke Alec Shelbrooke Ceidwadwyr, Elmet and Rothwell

The problem with the hon. Gentleman’s statements is that they are based on a snippet of time. It may well be true that Labour councils have had larger cuts inflicted on them than Liberal and Tory councils, but if we look back over history, we will see that those councils were starved of money. Certainly, my own council—Leeds city council—had by far the lowest settlement of any of the metropolitan councils when it was under a Tory-Liberal administration. Neighbouring administrations as close as Wakefield and, of course, Manchester had almost double the settlement per head of Leeds.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful to the hon. Gentleman, but I am concerned that he seems to be suggesting that the Secretary of State has sought an element of retribution against those councils.

Photo of Alec Shelbrooke Alec Shelbrooke Ceidwadwyr, Elmet and Rothwell

I take issue with the word “retribution.” That is not the word; the word is “rebalancing.”

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

The Secretary of State has many words for it. There is a fascinating debate to be had about funding settlements for local authorities over the past 30 or 40 years. I believe that it would be within the bounds of the debate to say that we had exactly the same problems in the 1980s, when urban, northern councils were starved of funding. The motivation behind some of those decisions in the 1980s was political, on the part of the Secretaries of State for the Environment, as they were known at the time—before a fancy new title came along. In the 1990s and the early part of the past decade, under a Labour Government, a rebalancing of the deficit that those local authorities had suffered from was absolutely right. I can assure the hon. Gentleman that retribution and revenge were not behind the actions of Mr Prescott—now Lord Prescott—and others on the funding settlement, which is not the case with the Secretary of State for Communities and Local Government.

Moving on to the issue raised by the hon. Member for Newton Abbot—the role of the OBR—I was lucky enough to go on an exchange programme organised by the British-American Parliamentary Group in September last year. Its work will be familiar, and many Government Members will have the opportunity to go to the United States on that useful exchange programme, which is funded by the State Department and the Foreign Office. I was there with the hon. Member for Bristol West who, unfortunately, does not seem to have been able to join us yet in Committee.

We had an opportunity to meet with the US Congress and to get a better understanding of the role of the Congressional Budget Office and the other scrutiny mechanisms. They have quite a wide remit, in terms of what they look at in the States, both in the federal set-up and at the state level. It is correct, as my hon. Friends the Members for Nottingham East and for Bristol East have said and tried to achieve in their amendments, to widen the scope of the OBR’s remit somewhat, but not dramatically. It is probably fair to say that the local authorities in England spend more collectively than almost any other Department, except perhaps for the national health service and the Ministry of Defence—I seek clarification from the Minister if I have got that wrong.

Photo of Anne Marie Morris Anne Marie Morris Ceidwadwyr, Newton Abbot

I hear what the hon. Gentleman says but, because something works in the US, it will not necessarily work here. I am not sure how child poverty, important as it is, and local government can be picked out as the two prime examples. Taking his argument to its logical conclusion, we should be taking on a number of other things, but we then get to the point where we are dealing not only with the Treasury but with a number of other Departments and the situation becomes completely unmanageable.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful to the hon. Lady who, with her probing questions, is clearly giving some thought to how she will be voting.

Such scrutiny is absolutely right for local authorities, given what a huge part of the Budget they take from the central Government. Local authorities can also raise their own revenue. One of the key aspects of the OBR is looking at the financial stability of public institutions, and I can think of no better example of a public institution with revenue-raising abilities but an uncertain financial future than the local authorities. Also useful, as the carefully worded amendment 13 makes clear, is the fact that such scrutiny would take some of the rhetoric and debate out of the issue.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman is absolutely right that local authorities should be scrutinised in that way—presumably by the OBR. Does he want the OBR to have a scrutiny role and then to pass some kind of judgment? How does he square that with the need for the OBR to be totally independent?

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am not sure why we cannot have scrutiny and independence at the same time. Perhaps I have misunderstood the Minister’s question, but surely the point is for the OBR to provide Parliament with independent analysis of the financial footing of local authorities.

Something I learned from my visit to the US is that individual states are basically going bankrupt, because they are spending more money than they are bringing in from their various revenue streams, whether from federal funding or what they raise through taxation. There is a strong suspicion—I stick purely to England for the purposes of the amendment—that many local authorities are in grave danger of going bankrupt in the next 12 to 24 months. We see local authority after local authority having to make painful decisions. Even the smallest local authorities and Conservative councils are having to lay off huge numbers of staff. It is right to have an independent body to scrutinise fiscal policies at local authority level and determine, first, whether they are able to deliver services, and secondly, whether their projections for expenditure match those for income. I struggle to understand why the Minister does not think a body can be independent and take that scrutiny role. If she could clarify what she meant I would be happy to take another intervention.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 4:15, 1 Mawrth 2011

The bottom line is that the amendment the hon. Gentleman is proposing does not talk about that. It talks about a role for the OBR in determining whether the local government finance settlement is impartial. He may have a point, but it is not related to the amendment he is apparently supporting.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am a huge admirer of the Minister, but I draw her attention to page 2 of the explanatory notes, which I assume she had some part in preparing. It says:

Clause 4 describes the functions of the Office. Its main duty will be to examine and report on the sustainability of the public finances.”

I therefore struggle to understand why asking the OBR to do a report into the sustainability of local authorities’ public finances does not fall within that scope. That is on page 2 of the document she has in front of her.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman makes an interesting comment, but that is not what his amendment says. [ Interruption. ] I can see him taking advice from his Front-Bench team and I am happy to listen.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Minister’s comments are illuminating, as she is obviously melting to the persuasive argument my hon. Friend is making. Perhaps he can encourage her to table a more refined, finessed amendment if she feels that just talking about the impartiality of the settlement is insufficient. Perhaps it should be widened to include the sustainability of local public finances as well. Surely that would be the best way forward.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful to my hon. Friend. What confused me, Dr McCrea, was that earlier this morning, prior to the fascinating debate about fetishes, we had a clear indication from the Minister that she felt that one could be over-prescriptive in an amendment. Perhaps in my youthful naivety I had assumed it was a given that, as part of the work on local authorities, financial sustainability would be looked at. I am deeply sorry if that is not the case.

Photo of Alec Shelbrooke Alec Shelbrooke Ceidwadwyr, Elmet and Rothwell

If the hon. Gentleman will indulge me, I would like to intervene and then come back again. First, does he feel that the Audit Commission kept local government finances in check and working as efficiently as they should have?

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

According to my first-hand experience of Scotland, it certainly did. Do I think that it perhaps lost its way somewhat? Of course I do. Do I think that simply scrapping it will help the public finances? Of course it will not. I very much hope that the Secretary of State, even at this late stage, will reconsider his decision to abolish the Audit Commission.

Photo of Alec Shelbrooke Alec Shelbrooke Ceidwadwyr, Elmet and Rothwell

The hon. Gentleman is being most generous in giving way and I am grateful for that answer. We could look at the settlement that has just happened in the Leeds metropolitan council. The Audit Commission identified a huge amount of money being wasted in the purchasing of stationery and so on, simply because council employees purchased it willy-nilly from a catalogue. If it had been added to the bulk order, a 70% discount would have been available. The amendment refers to

“the impartiality of the local government…settlement”.

A truly independent OBR would look at the settlement being given and the structures in place and probably agree that the settlement was reasonable. The recent amendment to the Leeds budget to save 10% on the stationery budget to keep the leisure centres open was voted down, but I am sure that the OBR, with its full independence, would consider that reasonable and might imply that the Government were not impartial in the local government settlements.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful to the hon. Gentleman for that. I have been slightly confused. I have always believed that some Members on the Government Benches—there are no Liberal Democrat Members here—are quite consistent, and I am surprised he does not support his party’s document published in February 2009. I thought that that would be the basis for the Government’s thinking, particularly with no Liberal Democrat Members around—perhaps they have forgotten that they have a job to do today. That document says:

“The Audit Commission will be given a specific duty to report on whether the basis for allocation is”— wait for it—

“transparent and in accordance with objective criteria set out by Ministers.”

I appreciate that compromises have been made, and Labour Members want to help our Conservative colleagues. Given that the Audit Commission is being scrapped, we want to provide the next best thing—the OBR and the specific promise that the hon. Member for Elmet and Rothwell gave to his constituents to have transparent and independent auditing of the funding settlement.

The Minister made an excellent point about the wording, and I am sure that if she introduces such an amendment later during the Committee or, if that is not practicable, on Report, my hon. Friend the Member for Nottingham East could be charmed into withdrawing his amendment.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

I should like to speak to amendment 8 and briefly to amendment 12. It is important to examine sustainability as broadly as possible, without being so broad that it is outwith the realms of what the Office for Budgetary Responsibility will do. If we concentrate narrowly on deficit and financial issues, other issues are, in my view at least, ignored. Much has been made at various times—we have touched on this briefly—about the intergenerational issue and intergenerational fairness.

A frequent argument for reducing the deficit as fast as possible is intergenerational fairness, but there are other aspects of such fairness. One is whether more intergenerational unfairness will arise if people do not have jobs and there is no economic growth. We know that long-term unemployment, particularly youth unemployment, has a marked effect on people’s entire future life, and an impact on such things as social inequality. All parties seem to believe that that is an important issue, and have sometimes spoken about it passionately. We must look seriously at how to achieve such fairness. Just using the words is not enough. My argument on sustainability is that we must look seriously at a range of issues. Amendment 8 would clarify sustainability, and provide a definition that would allow us to take into account a range of matters, including economic growth and employment.

Amendment 12 involves part of the whole issue of intergenerational fairness. If we are serious about tackling social inequality, as well as family poverty and particularly child poverty, which is one aspect of that, we must ensure that we measure and take account of whether we are achieving what we say we are achieving. Much criticism has been levelled, particularly at the previous Government, for measuring too much and having too many targets, but if we do not measure, how will we ever know whether we have achieved what we want to  achieve? There may be better ways—obviously, the Minister may be able to suggest some—to measure and assess the obligations under the Child Poverty Act 2010 than by giving the task to the OBR, but, at the moment, it seems that there is a gap and that that will not be looked at in as much detail as it should.

We are setting set up a body which I hope will be truly independent, which can look both forward and back at some of the decisions that are made, and which can give a projection of the likely effects of some of the steps that are taken. I would argue that it needs a slightly wider framework.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

We have had interesting debates before and after lunch. I shall briefly run through the amendments in turn to address the issues that have been raised, but I would say to Opposition Members that they cannot have it all ways. We are about to come on to clause 5, which deals with the key principles on which the OBR will run—basically, they are objectivity, transparency and impartiality—which I believe we would all agree are critical. However, the amendments are starting to prescribe what the OBR should do, in spite of the desire to which the hon. Member for Edinburgh East just referred for it to be completely independent. It cannot be completely independent if it is being told what to do in the kind of detail contained in amendments 12 and 13. I shall come to them in a little more detail in a second.

On amendment 8, which is about sustainability, it is right, as the hon. Lady just said, that sustainability is a broad concept that has a multitude of different dimensions. That was debated in the other place. I want to reassure members of the Committee that the Government intend to amend the charter to require the OBR to set out how it will approach sustainability in each of its reports. Hopefully, we can maintain the OBR’s independence but encourage it to be clear about sustainability and how it considers it.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am interested to hear that the draft charter for budget responsibility is likely to be amended to broaden the sustainability concept. Will the Minister state clearly that if the OBR wishes to study the impact of Treasury policies on, for example, child poverty, she will have absolutely no qualms about that but will in fact welcome it?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I welcome the hon. Gentleman’s intervention, which shows clearly that although the previous Government did not think of setting up an office for budget responsibility, now that the idea is in a Bill, the Opposition have all kinds of ideas about how its remit could be expanded and developed.

At this point, we want to ensure that the core issues of objectivity, impartiality and transparency are bedded down. The hon. Gentleman has some ideas about what the OBR should find important to look at, but we believe that it should be completely independent. It should be able to look at what it wants to look at. I agree that it should scrutinise Government policy only—it is not there to look at different scenarios. Its expertise is in fiscal forecasting. At this stage, it does not have expertise in distributional analysis, for example, so he is getting slightly ahead of what it is doing at present. What is critical is that it is entirely independent and able to do the analysis it wants to do.

Page 11 of the charter sets out the OBR’s remit, which can be modified over time. We have debated the process by which that would happen—a resolution must be agreed by the House to change the charter. The key point is that the OBR has to be entirely independent, and be seen to be so. That point was made clearly by the Treasury Committee. As we will go on to discuss shortly, it is one of the reasons why we have been so careful to develop a good process for choosing the chair of the OBR. We have been careful to ensure that that person goes through a process of pre-appointment scrutiny and is approved by the Treasury Committee.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife 4:30, 1 Mawrth 2011

I was in this very room less than a month ago during the Armed Forces Public Bill Committee’s discussion of the military covenant. The Minister’s colleague, the right hon. Member for South Leicestershire (Mr Robathan), who is the Minister with responsibility for veterans’ affairs, specifically cited three examples for inclusion in the covenant report. He made it absolutely clear that a report could be fully independent even if Parliament laid down some examples. So I am puzzled. Why has one wing of Government said that the Government can lay down specific examples without ruling out other things? This Minister seems to be suggesting that the Government cannot do that.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I am talking in the context of the Office for Budget Responsibility, which we are addressing in the Bill. Clearly, the purpose of the OBR is to take a process—the forecasting of public finances and the sustainability of public finances—that used to be delivered by the Treasury and to put it in an entirely independent body separate from the Treasury.

We always had a problem with the figures’ lack of credibility. We would get to each Budget and the figures would be presented in the Red Book, but there would be no consensus on whether they were robust. The Bill sets up an Office for Budget Responsibility, which means that that forecasting is done by an entirely independent group of people. Of course, it needs to work with the Treasury—it is trying to assess the impact of Treasury policies contained in a Budget—but the point is that it is doing that independently. That is why I do not think it is right for us already to be telling the OBR that it needs to do explicit, additional work.

We have addressed the issue of sustainability in the charter. Members have raised their concerns. Many of them have talked about the importance of those issues in the context of the economic environment. Things change, of course, and had we introduced the Bill at a different time, someone would have said that we had to make absolutely sure that it covered some other area that was particularly important at that time.

We are trying to ensure that the House does not get into the business of being explicit about the things that the OBR should be looking at. We want to make it very clear that the OBR should be looking at broad forecasting and responding to particular queries from the Government for independent analysis. The OBR should be in charge of producing Government forecasts in the way that the Treasury did in the past.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I think I understand the logic behind the Minister’s keenness to resist the expansion of the duties listed in clause 4. However, as my hon. Friend the Member for Dunfermline and West Fife has already said, adding a duty to test the impact of Treasury policy on child poverty would not in any way jeopardise the OBR’s independence.

Is the Minister saying that it would be more appropriate to look at the charter’s objectives and the mandate for those specific elements of sustainability? After all, the objective mentions intergenerational fairness and the effectiveness of monetary policy. To the degree that the charter is specific, is she suggesting that it would be more appropriate to amend the charter to include, for example, the duty to test the child poverty impact?

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

For my benefit, will the Minister clarify that point? I think she is saying that she is somewhat reluctant explicitly to give additional powers. Suppose that the wording of the amendment tabled by my hon. Friend the Member for Nottingham East stated that the office “may also examine” child poverty or local authorities, rather than “shall also examine”. Would the Minister be content that that was a suitable form of words that made it clear that the option was there while also guaranteeing the independence for the body to make its own decision?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

There is no need to make that change. The Bill enables the Office for Budget Responsibility to fulfil its duties entirely in the way it sees fit. We will soon come to clause 9 on the right to information, under which it can request the information that it thinks it needs.

I will return to my original comments, although I am conscious that I must make progress and respond to the points raised by other amendments. We must allow the OBR to have its independence, and the Bill sets out the context and the duties that it will have. The key to success—the critical point—is that it will have the independence to get on and do its job as it sees fit. The Treasury Committee, quite rightly, flags up the issue of independence as key. If we get to the position where the OBR is not seen as independent, that will fundamentally undermine its ability to deliver what we want, which is credible forecasting that people agree is robust.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

Going back to the point raised by the hon. Member for Elmet and Rothwell, my concern—which I suspect is shared by my hon. Friends the Members for Nottingham East and for Bristol East—is that if we do not indicate in some sort of formal manner that the OBR may choose to examine these or other issues, a future Government who are more callous than the Minister may cut the funding off at the knees. The Secretary of State for Communities and Local Government did that to the Audit Commission because he does not like its policies. If we do not write down that the OBR has the power to look at child poverty, local authorities or other areas, is there not a danger that a future Government might claim that it has overstepped its remit?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I go back to my original comments. It is clear in the Bill and the charter that the OBR can fulfil its duty in the way that it sees fit. I would be concerned if, at some point in the very, very distant future—we hope—the hon. Gentleman’s Government were ever to change and challenge that. That is why we decided that it is important to have parliamentary scrutiny to ensure that any modification of the charter goes through a resolution and is approved by the House of Commons.

I do not accept what the hon. Gentleman is saying. The Bill makes it clear that the OBR is independent and needs to be impartial, and that it has to remain objective at all times. We have set it up to enable it to do that. However, I think that we will come to some additional amendments that may undermine that.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am slightly confused, as is my hon. Friend the Member for Nottingham East, about why giving the OBR the task of looking at whether the child poverty target has been met would in any way compromise its impartiality. Does the Minister suggest that it would get embroiled in making political decisions about the child poverty targets? Surely it is a simple matter. We have the Child Poverty Act 2010 and there are four different tests set out in that. That is clear and requires empirical analysis as to whether the target has been met. I do not understand why that would compromise impartiality or integrity.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I am sorry that the hon. Lady and her colleagues are confused. We do not want to accept the amendment because the role of the OBR is to

“examine and report on the sustainability of the public finances.”

That is its key duty, so its analysis has to be pursuant to that principal duty. The hon. Lady wants to broaden its remit into an area for which it does not have the expertise.

My other point is a fundamental point of principle. Including amendments 12 and 13, which pick up specific policy areas, and saying that the Office for Budget Responsibility must look at them, is by definition starting to compromise its independence in carrying out its job pursuant to what we are setting out in the Bill. I know that the Opposition do not agree with that.

As with many good ideas from Conservative and Conservative-led Governments, I worry that the Opposition will seek to tamper and interfere—in their eyes, try to make better—and undermine what is a very strong idea to set up an independent Office for Budget Responsibility to provide independent forecasts. For too long, this country had a Government who did not produce independent forecasts and did not therefore have a credible fiscal policy, but were able to try to mask the fact that they were taking our economy from being prosperous to being fundamentally weakened with a structural deficit. We now have to spend time addressing that deficit with some very difficult choices.

I was interested to hear the debate on child poverty and local government finance. We know that one of the determinants of child poverty is whether families have jobs, and I merely note that Opposition Members left government with unemployment higher than when they came in.

I also note that their former Chief Secretary to the Treasury left a message for his successor that said that there was no money left. That is a very difficult thing for Opposition Members to keep hearing, but the reality is, even if the shadow Chancellor denies that Britain was left in a financial mess, it actually was. There is no getting away from that.

If Opposition Members are to be taken seriously on the economy, they need to start to outline their alternative. Their refusenik approach to policy so far has been evidenced today in their bleeding-hearts response to what is going on in Government policy. Well, Government policy is in direct response to the utter mess in which the Opposition left our public finances.

My other observation is that if the Opposition want to be credible, they will at least have the guts to admit what they were planning to do, which was to start cutting public expenditure in April. In fact, they were going to cut it by about £2 billion less. If they want to be taken seriously, perhaps at some point during the next three weeks they will set out where their cuts would be made. At the moment, we have not had a penny from them.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Is it any wonder? What the British people recognise is that we had a plan for tackling the deficit, whereas the party that created it does not even admit that it existed. [ Interruption. ]

Photo of William McCrea William McCrea Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Home Affairs), Shadow DUP Leader of the House of Commons

Order. I remind all hon. Members that I am not in government, so you should not say “you’re” anything. I am the Chair. I have the privilege of being totally independent.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 4:45, 1 Mawrth 2011

Having set out why I think that the Office for Budget Responsibility needs to stick to its core task, for which we have set it up—

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I shall not take any more interventions at present; I have taken an awful lot, as I think the Opposition will recognise.

Let us briefly discuss amendment 9, which would require the OBR to produce sustainability and accuracy reports twice each year. There are good reasons for keeping both reports on an annual basis. On the accuracy report, sufficient new out-turn data must be available to merit a new assessment of forecast accuracy, and a second report in a year would benefit from very little new data with which to analyse accuracy.

The sustainability report will have the broad scope that we have said it needs. The OBR has set out the range of issues that it intends to consider, including changes to the uprating of pension benefits and to the public sector work force. Such changes will require substantial work, which will take time.

An annual reporting requirement provides the OBR with the necessary time to produce the analysis, whereas with a biannual report there would be a risk of its not having sufficient time for such rigorous analysis. Because  we want the OBR to be independent, however, there is nothing to stop it producing additional analysis on a more frequent basis, should it wish to.

Again, amendment 10 goes in the wrong direction, because it would require the OBR’s sustainability report to focus only on the next five years. The OBR has said that it intends the report to include long-term analysis on the sustainability of the public finances, which will include projections over the next 40 years to allow a full analysis of long-term trends. That is consistent with the sustainability analysis produced by other international forecasting councils. We do not want to accept an amendment that, far from allowing that, would prescriptively curtail it.

Amendment 11 would give the OBR an explicit role in informing public debate, but the OBR has been designed to produce a broad range of reports that are accessible to everyone. It is required to act transparently to ensure that all its work, assumptions and methodology are set out. We in this House have already spent a lot of time debating OBR reports. I note that the Opposition have become fond of cherry-picking various statistics from such reports, so they are clearly ones that people will use and scrutinise.

A careful balance must be struck between the OBR’s publishing and disseminating the most credible analysis possible, and its having an advocacy role that might result in its being brought into political debates. The last thing we want to do is risk its impartiality and hence its credibility. The OBR will be a force for good only if it is deemed credible, and the Treasury Committee agrees:

“The OBR’s contribution to public understanding should not be confused with self promotion. This commentary function should be one of informing public debate through disseminating better understanding of fiscal policy and long-term economic trends, identifying possible risks in the structure of the economy and provision of data.”

The spirit of the amendment is already achieved through the OBR remit. Through producing the best possible fiscal analysis, and doing so in a transparent manner, the OBR will promote a wider public understanding of sustainability issues.

On amendments 12 and 13, the OBR has been explicitly established to examine a report on the sustainability of the public finances, but, subject to that statutory duty, it is afforded complete discretion in doing so. To ensure that it is credible, it must operate objectively, transparently and impartially. Both amendments seek to give the OBR responsibility. Amendment 12 proposes doing so in measuring child poverty, which would significantly and inappropriately expand its role.

The OBR has an expertise in macro-economic and fiscal analysis, not in examining the distributional effects of Government policy. That would require a significant expansion of the OBR’s capability, which would not be consistent with its responsibilities regarding the sustainability of the public finances. The amendment would bring the OBR into a different analytical territory from the one that it is designed to consider.

Amendment 13 would give the OBR a role in assessing local authority finance settlements. I wish to remind members of the Committee that the OBR is not a policy-making organisation. Policy does—and, indeed,  should—remain the domain of the Government. Our decisions regarding the local government finance settlement are the domain of the Government and elected Ministers. The impartiality or otherwise of such decisions is inevitably a subjective and potentially political judgment. Given that we all look at its inquiry with real interest, the Treasury Committee said:

“The OBR should avoid being drawn into seeking to apply political pressure through its commentary—even thought many commentators”—

I am looking at Opposition Members—

“will encourage it to do so. The OBR, is not and should not be, running fiscal policy.”

I agree with that. It would be inappropriate for the OBR to police the Government’s decisions or determine the “impartiality” of those decisions or otherwise. That is more properly a role for Parliament.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The hon. Lady says that she does not think that the OBR has a role in policing the Government’s decisions, yet they are asking the OBR to analyse and assess the sustainability of public finances. Will she now turn specifically to the point that I asked her to address in respect of the “Control Shift: Returning Power to Local Communities” document? Obviously, the Prime Minister’s face is in the foreword to the document in which the Conservative party committed only two years ago to have an Audit Commission. There is no longer an Audit Commission, but the OBR seems the best alternative to be

“given a specific duty to report on whether the basis for allocation”— of local government finance— is transparent” in accordance with objective criteria set out. If the Government now no longer stand by that commitment, that is fair enough, but I would like to hear it from the Minister. Where does she stand on that particular promise, which was made before the election?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

As the hon. Gentleman knows, the local government finance settlement was debated in Parliament on 9 February. That is the appropriate vehicle for Parliament to decide on matters. As for the way in which local government funding is allocated and the debate that he is interested in having on whether that happens on an impartial basis, many Members of Parliament would have their own opinion on whether the settlement their council gets is fair and whether the Government are treating their council impartially.

The hon. Gentleman will be pleased to hear that the local government resource review will be a fundamental look at the future of local government finance. I am sure that he will want to have his say, and stakeholders will have the opportunity over the next few months to put their views on funding for local authorities from 2013 to 2014. There will be a forum and a vehicle whereby impartiality can be considered.

Just down the corridor, the Localism Bill is being discussed in Committee, too. Those on the Government Benches have always been keen on localism and giving local communities more control over what happens to them. I hope that down the corridor the hon. Gentleman’s party is finally embracing the need to move away from central diktat to more locally driven decision making.

With that, I have covered the issues raised by the Opposition Members. I do not accept their amendments. Perhaps some were well intentioned, but they would take the OBR down a route that risks the fundamentals of what it will be set up to achieve: impartiality, objectivity, transparency and making sure that people see it as absolutely independent.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Dear, dear. The sound that you can hear, Dr McCrea, is barrels being scraped as arguments against the amendments are accrued as much as possible. All credit to the officials that the hon. Lady has with her today. It must have taken the phalanx hours of hard work to come up with the argument that we cannot assess the impact of Treasury policy on child poverty because that would jeopardise the independence of the Office for Budget Responsibility.

The hon. Member for Putney is a talented Minister who will go a long way in the years ahead, but that argument was not her finest hour. Perhaps she read on in her notes and got to the point where it said that the issue was outside the remit of the OBR and she tried to avoid saying it. But she did say it eventually.

The reason why she was logically trying to avoid saying that child poverty would be outside the remit of the OBR was that it implies, at a certain level—I am sure this is not true—that she does not regard child poverty as part of responsible budgeting and responsible public financial stewardship.

It is a great pity if the hon. Lady takes that view. For all the points she makes that the OBR does not have the expertise to look at these issues, I am not sure that that is necessarily the case. It is a pretty broad-minded and well skilled organisation. As I said before, if we are to start looking at this concept of responsibility we have to start thinking about outcomes; otherwise we are merely bean-counting and measuring inputs. I had thought that her Administration were against that sort of approach in public policy management, but perhaps I am wrong.

It would be perfectly reasonable to set out in the Bill that the OBR should have this responsibility. That would in no way jeopardise its impartiality or independence. The fact that the Minister eventually had to resort to the arguments that it would risk the fundamentals of the OBR to do so and would be inappropriate for the OBR to have this duty is testament to the lower order priority the Government are showing when it comes to addressing child poverty issues.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Does my hon. Friend share my suspicion that the real reason why the Government do not want this provision to be included in the Bill is that, given their track record on the Budget and the spending review and the impact of that on children and families, they have no intention of meeting the child poverty targets and they want to brush under the carpet the fact that this Child Poverty Act and these targets are in existence? Obviously if we had this provision in the Bill it would force them to do something about child poverty.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. Something like a year from the commencement of the Child Poverty Act, which is around 25 March, a report must be produced on progress towards meeting the child poverty targets. Our suspicion  is that the Government may well trigger the provisions in the Bill that provide that fiscal circumstances mean that they cannot meet those targets as they pile on the VAT, cut tax credits and education maintenance allowances and so on and so forth. This is the direction of policy that the Government are taking. Whatever those policy objectives may be, let us have somebody independently assess their impact so that people do not have to take our word for it as politicians. We want to have someone else to do it. The whole construct of this arrangement is in part about having an independent body audit the things that the Government want to be audited and assessed, but anybody else’s opinion about what should be audited or assessed, well that is outside the remit of the Bill.

Photo of Anne Marie Morris Anne Marie Morris Ceidwadwyr, Newton Abbot

I question the hon. Gentleman’s argument about logic. I do not agree with his summation of the Minister’s logic, but I must question his logic. Just because we do not put a specific reference to child poverty in the Bill does not mean that the Government are not concerned it. Of course we are concerned about it. This is just the wrong place to do it and we would not do it justice.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

In a way, the hon. Lady succinctly makes the argument that the Minister took about 20 minutes to make. The Minister said that it would jeopardise the independence of the Office for Budget to have it looking at child poverty, whereas the hon. Lady has said that it is the wrong measure and not the right organisation to do that. The Minister eventually came round to saying that. If that is what they believe, that is the Minister’s judgment. She takes a different definition of responsibility than we would. We are looking at responsibility in terms of the things that matter to our constituents. If she were to talk to the people out in her or my constituency and ask them what a responsible budget is, they would want to know what the impact is on the ground on the lives, living standards and so on of real people. That is simply the point I am trying to make through this set of amendments.

On amendment 13, that barrel-scraping activity continued again when the Minister was pressed on her party’s commitment to have an audit body that is given a specific duty to report on whether the basis for the local government financial settlement is “transparent and in accordance with objective criteria set out by Ministers.”

Clearly, the Minister did not want to address that particular commitment. At no point did she say, “Yes, we stand by that commitment, but we are finding a different vehicle through which to adhere to it.” She did not say, “Actually, because of the coalition and the Liberal Democrats, things are different. What we said before the election no longer counts.” That is sometimes what the Government say when they change their mind on various things. We therefore almost had a stealthy U-turn by conspicuous logic, rather than it being stated verbally. By ignoring the issue, she simply implied that it was no longer relevant. That is a great pity. We will probably have to return to the matter at a later date in the consideration of the Bill.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife 5:00, 1 Mawrth 2011

Another reason might be that the Minister has spent too long with the Lib Dems and she has forgotten what her job is.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I cannot imagine the way that Ministers work in this day and age. It is certainly a mystery to most of the country. I thought that the notion of trying to create a vehicle to assess local budget responsibility and the impartiality of the settlement would be something we could engage with the Government on, given that they had shown through their words and policy documents an interest in that. However, obviously, that is not the case. As I say, we will have to find another opportunity to look at those particular issues.

The Minister says that a review of local government resources is coming up and that there is a Localism Bill. However, those are not the correct vehicles for assessing the transparent and objective criteria used for a local government financial settlement, because they will not be creating an independent body in statute, such as the Audit Commission or the Office for Budget Responsibility. She may well have a number of her cronies in mind that she wants to appoint to that resources review, but the Localism Bill certainly does not touch on these issues. Therefore, we await with interest to see the Government’s ability to address their promise made before the general election.

The other amendments in this chain have a number of merits. I heard what the Minister said about several of them. My hon. Friends who spoke earlier made good points about the necessity for a broader definition of sustainability. When challenged, the Minister did not say at any point, “Well, the OBR mustn’t look at child poverty or the local government settlement.” We have to hope that it will at some point regard those things as issues that matter. I hope that the fact we have debated them in Committee will send a signal to the OBR that scrutiny of such issues would be very welcome.

I am happy to withdraw amendments 8, 9, 10, and 11, but we want to press amendments 12 and 13 to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 8.

Rhif adran 1 Decision Time — Clause 4

Ie: 7 MPs

Na: 8 MPs

Ie: A-Z fesul cyfenw

Na: A-Z fesul cyfenw

Question accordingly negatived.

Amendment proposed: 13, in clause 4, page 2, line 20, at end insert

‘The Office shall also examine and report on the impartiality of the local government finance settlement as it is applied across local authorities in England.’.—(Chris Leslie.)

Question put, That the amendment be made.

Question negatived.

Question proposed,That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clause 4 is one of the central provisions in the Bill. We have already debated the limits of subsection (1), but the clause also sets out the consequential reporting arrangements that the Office for Budget Responsibility must make in respect of its duties. We have discussed, to a certain extent, the fact that there are several occasions on which reports must be prepared on fiscal and economic forecasting. There is, however, the anomaly of having twice-yearly reports on fiscal and economic forecasting and the fiscal mandate, but only on one occasion each year would the Office for Budget Responsibility make

“an assessment of the accuracy of fiscal and economic forecasts prepared by it”.

Does the Minister think that there is any problem with a corporate body such as the OBR assessing the accuracy of its own forecasts? In clause 4(4)(a), there is a provision that, every year, a navel-gazing operation will take place, and, presumably, a document will be published that says something in the order of, “Yes. We looked at these figures and published our assessment of them, and our assessment was good and accurate. By saying that, therefore, we comply with the provisions in the Bill.”

I do not want to give the impression that I am somehow sceptical of the necessity of every line in the Bill, but one sometimes gets a sense that it is slightly flabby legislation and that there are several provisions that are padding the legislation out to make it look slightly grander and more important than it perhaps is. Asking an organisation formally to review its own work annually seems slightly circuitous. Perhaps the Minister feels that that is an especially worthwhile exercise. It may be what, in modern management parlance, they call a 360° review. It is a horrible process for anyone in management where everyone around them is asked how well they are doing, but maybe it is something that Ministers should do more frequently. But for the OBR this is its fate—the measure is now in the Bill. However, never let it be said by a Minister in this Committee that we cannot have a measure in the Bill because it is extraneous, unnecessary or not part of the legislation. There are plenty of examples in the Bill of measures that go slightly beyond necessity.

By and large, we feel that there is merit in creating a body to provide this analysis and assessment. We also feel that the duties of the OBR and the issues that it should take into account are fairly uncontroversial, other than the unnecessarily narrow definition of “sustainability” that Ministers seem to be imposing through the drafting of the Bill. As I say, however, by and large we think that there are important provisions in the Bill and we understand where the Government are coming from on this issue.

Photo of Alison McGovern Alison McGovern Llafur, Wirral South

My hon. Friend says, “Ladies first,” but I would perhaps say, “Age before beauty.”

I hope that the Minister can help me with a question about sustainability. The clause is central to the Bill as it establishes that the OBR will

“examine and report on the sustainability of the public finances.”

First, for the record, I want to raise a problem with the clause because “sustainability” is a highly contested term. Our debate on the amendments to the clause revealed the contestable nature of the idea of “sustainability” in relation to the public finances.

I will give an example to show the Committee why I think this idea of “sustainability” might be problematic and why we need to be clear about it. The financial services sector commissioned a number of academic reports prior to the 2008 financial crash that demonstrated that collaterised debt obligations and credit default swaps promoted economic stability. Some academics in various economic departments around the world found that those financial instruments were effectively promoting financial stability because of their dispersal of risk. Of course, we all know what happened.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Obviously the hon. Lady is aware that the shadow Chancellor was City Minister when much of this failure of regulation took place. Does she think that he was one of the people who read those reports and was taken in by them?

Photo of Alison McGovern Alison McGovern Llafur, Wirral South

The shadow Chancellor has played a great role in the economic history of this country from the mid-1990s and through the crash. I suppose that the Minister is asking me to account for why the previous Government did not take regulatory action to disallow the financial instruments that I have just mentioned. The implication of her point is that when the shadow Chancellor was City Minister, he ought to have acted in some regulatory manner to prevent those instruments from being used. Knowing what we know now, we can all go back, pick over history and say, “Perhaps such a Minister should have regulated there,” or, “Perhaps such an Opposition should not have called for light-touch regulation,” as the Conservative party did. Throughout my living memory, the Conservative party has been calling for light-touch regulation of the City of London, and it did so all the way through its time in opposition. I would happily discuss at length with the Minister the point at which she thinks the former City Minister should have regulated, and at what point she called in Parliament for that very regulation, but I fear that such a discussion might test your patience, Dr McCrea. The question is important, however, and I wish that we had more information.

The point I am driving at is that our recent history shows that conflicting evidence has been produced, with worthy academics saying that a particular instrument or a certain approach to the economy promotes stability. How will the OBR know how it is to fulfil its legal duty

“to examine and report on the sustainability of the public finances” when that notion is so heavily contested? It will be very difficult to achieve that without reference to academics, information, economic theorists and public finance experts. I am sure that it will refer to those sources, but I would  find it helpful if the Minister could explain how she interprets sustainability of the public finances and how she expects the OBR to do so. Our debates on clause 4 have actually been about the job that we expect the OBR to do. Sustainability is not a concept that can be easily understood or defined straightforwardly. Will the Minister give us more information about how she expects the duty to be fulfilled?

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife 5:15, 1 Mawrth 2011

First, I shall to pick up on the Minister’s earlier question about regulation. As she will recall, after Northern Rock collapsed in 2008, her own boss spoke in the City—I suspect it was at a fundraising bash, because the Tories held many of those. He said, “You want less regulation and we”—the Tories—“will deliver it.” Labour Members will not take a lecture on a light-touch regulatory approach from Conservative Members.

I agree with my hon. Friend about the wishy-washy, unclear and not very substantive approach on some of the wording in the clause. There is, of course, a Lib Dem in the Treasury team, so given the Minister’s precise mind, such a wishy-washy phrase that does not mean anything at all must have come from the pen of the Chief Secretary to the Treasury rather than her.

The specific issue that I would like the Minister to clarify is whether the OBR will have the funding and ability to carry out studies into the devolved Administrations throughout the United Kingdom. At the moment, Scottish Ministers—when they have not given away the powers—have the ability to set business rates within Scotland and to vary income tax at the basic rate by up to 3p in the pound. Those revenue-raising powers are significant, and Scotland receives a not inconsiderable block grant from the UK Government. From next Monday, the Committee of the whole House will consider the Scotland Bill, so I look forward hearing to the hon. Members for Witham and for Bury North championing the causes of further devolution and handing powers to the Scottish Parliament then. We know that they fully support those things and agree with their Prime Minister that the Scottish Parliament is a great institution. Without wishing to prejudge their excellent contributions on the issue of greater fiscal powers for Scotland, it is clear that, in future, the Scottish Parliament will have greater revenue raising powers. It has been suggested that it might even raise up to 50% of its income stream from its own people through its powers.

You, Dr McCrea, and your colleagues in Northern Ireland have successfully articulated the concerns of the people there about the current funding settlement. I am aware of particular concerns about the Treasury’s failure to guarantee the security of Northern Ireland under the ludicrously small settlement. It would be entirely appropriate for the OBR to investigate not only whether the Administrations of Northern Ireland, Scotland and Wales have the correct funding settlements to carry out their duties, but whether they have sustainable funding settlements—to use the wishy-washy term of the Chief Secretary to the Treasury.

Will the OBR be able to carry out a thorough, independent investigation into the sustainability of the devolved Administrations? If so, to echo the point made by my hon. Friend the Member for Wirral South, over what period does the Minister think that the sustainability should be examined? Is it the period of a  strict 12-month settlement, over the three years of a normal funding settlement, or over the lifetime of a UK Parliament?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Clause 4 sets out the main duty for the OBR, so it is obviously a key clause. That main duty is to examine and report on the sustainability of the public finances. I will respond to some of the points made the hon. Member for Wirral South shortly, but given the range of dimensions to sustainability, the OBR will be required to clarify its focus in each report and to set out how it has approached the question of sustainability.

The Bill requires four specific pieces of analysis. First, the OBR will have a duty to prepare fiscal and economic forecasts on at least two occasions for each financial year. Those are expected to act as the official forecasts for the Budget and for the autumn. Handing over the duty to produce those forecasts represents a major step forward for the credibility of the UK’s economic and fiscal forecasts and policies. That has been recognised widely, from the CBI to the International Monetary Fund. That said, it is consistent with the Treasury Committee’s report that this and future Governments retain the right to disagree with the OBR’s forecasts. If such a situation arose, the Chancellor would provide reasons to Parliament.

Secondly, alongside the forecasts, the OBR must produce an assessment of the extent to which the fiscal mandate has been, or is likely to be, achieved. It will make an independent assessment of the probability of the Government achieving their mandate, which will add further credibility to the Government’s fiscal policy. Thirdly, the OBR will, at least once for every financial year, prepare an assessment of the accuracy of the fiscal and economic forecasts it prepared previously. The purpose of that duty is to require the OBR to review its previous forecasts, which will allow it to consider any possible forecasting errors within its models and judgments, thus potentially strengthening its forecasting process.

The fourth and final specific duty is to produce, at least once for each financial year, an analysis of the sustainability of the public finances. We intend that that analysis will promote wider understanding of medium and long-term fiscal pressures, both within the Government and more widely. For each report produced under the clause, the OBR is required to explain the factors that it took into account when preparing the report, including the main assumptions and risks.

Beyond its statutory duties, the OBR will have complete discretion to determine its wider work programme. The hon. Member for Dunfermline and West Fife asked how the OBR will work with the devolved Administrations. It can work with them if there is a decision to analyse any relevant issues that are consistent with the OBR’s remit. For example, the hon. Gentleman mentioned the Scotland Bill, and once the Calman report is implemented, the OBR will be the forecasting authority for Scottish tax receipts, which I am sure he will be pleased to hear. The OBR can choose to do whatever work it wants, subject to its statutory duty, so if it decided to analyse the economy in Scotland or Wales—

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Indeed. We would expect the OBR to discuss such analysis with the devolved Administration concerned, but it would be free to carry it out.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I am grateful to the Minister for that clarification. Will she also tell us whether the time over which the OBR measures sustainability will be a single year, the period of a three-year funding settlement, or the lifetime of a Parliament?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

As I said earlier, one reason why we did not want to accept the Opposition amendment to make the forecasts cover a five-year period is that we want to see sustainability over the medium and longer term. In fact, the OBR has said that it wants to look over a time period of 40 years, so one aspect of its work is a long-term forward look at the sustainability of public finances.

As I have said, the OBR has complete discretion. That means that although the Government, parliamentary Committees and any other body can ask it to carry out a specific piece of work, it is for the OBR alone to determine its wider work programme.

On the OBR’s ability to look at sustainability and the use of experts, and its independence, which was raised by the hon. Member for Nottingham East, there will be non-executive directors as part of the broader OBR governance structure. On a day-to-day basis, they will ensure its independence and provide a fresh input into how it is working, including on the relevance of its forecasts.

Although the Treasury previously did the forecasts that will now be carried out by the independent OBR, it also used to assess whether its forecasts were accurate and published a report on that once a year. We propose to align that assessment of accuracy with what the OBR will do, and given that both the forecasting and the assessment of that forecasting used to be done by the Treasury, we will put both in the OBR.

The review of the OBR will be strengthened on a day-to-day basis by non-executive directors and by the fact that the members of the Budget Responsibility Committee will be experts. Everybody in this House would agree that Robert Chote, as chair of the OBR and the Budget Responsibility Committee, is well respected in the area. The OBR intends to establish an advisory committee of experts to support its work. Transparent analysis and the publication of its assessment of the accuracy of its forecasting, which is part of what it plans to do, is a key feedback loop to ensure that it improves its forecasting over time.

Finally, as I have said, the non-executive directors will commission an entirely independent review of the independent OBR every five years. Those measures mean that there are clear and effective safeguards in place to ensure that the OBR’s forecasting is analysed internally year on year and also externally. The ongoing scrutiny of OBR reports not only in Parliament, but by outside commentators, will also form part of the overall process of looking at how accurately the OBR is able to forecast.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

As I understand it, only three members of the Office for Budget Responsibility are in place so far, while two non-executives have not been appointed. Why have they not been appointed and when will they be appointed?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

We are going through an appointment process for those non-executive directors, who of course are just the initial non-executive directors. We have said that we think that there should be at least two. We recognise that over time—Labour Members clearly have their own ideas—the Office for Budget Responsibility may feel that it needs more non-executive directors. The Bill gives the OBR the flexibility to recruit further non-executive directors. The advertisements for the positions will go out later this year. We hope that people will be in post by the end of the year. At that stage, we will have a full Office for Budget Responsibility group on the Budget Responsibility Committee and in terms of non-executive directors.

Thomas Docherty rose—

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 5:30, 1 Mawrth 2011

I can see that the hon. Gentleman is keen to jump in.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

The Minister will obviously not have forgotten that there are 10 months of this year left, so could she be a little more specific about what “later this year” means?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

At this point, we do not intend to take too long to put in place the initial non-executive directors. I have tried to give an overall timeline that I am confident that we can meet, and I assure the hon. Gentleman that we want to get the Office for Budget Responsibility on a statutory footing, with all the people in place, as a matter of urgency. That is one reason why I rejected the amendment that would have created a delay, with a long-drawn-out public consultation that would have pushed back the whole process. We are very keen to get on with this, and I understand that we expect to have appointments in place by, in fact, the summer. However, before we can advertise, we need to agree the statutory role of the non-executive directors, in Committee and then in the remaining stages of scrutiny in the House. I can see that the hon. Gentleman wants to intervene one more time.

Photo of Thomas Docherty Thomas Docherty Llafur, Dunfermline and West Fife

I do. I want to hoist the petard very gently. When the Minister says, “summer”, does she mean by the summer recess? Will we have the chance to have a statement from the Treasury before the House rises on 19 July? The date might help the civil servants to work out whether that can be done.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I cannot at this stage give the precise date by which we will have the non-executive directors in place. We clearly want people whom we think will be appropriate, and the Bill has to complete its parliamentary scrutiny, which is what we are all involved in today. At that stage, having created the roles statutorily and having advertised them, we will have to wait to see who applies. We clearly have to go through a process, but I can assure the hon. Gentleman that that process is under way and that we do not want any delay.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I apologise to the Minister, as I know that she was finishing her speech on the clause, but I would like to know how many non-executive posts will be advertised before the summer.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.