UNCLASSIFIED
DPRR/10-11/18
BUDGET RESPONSIBILITY AND NATIONAL AUDIT BILL [HL]
Memorandum concerning the Delegated Powers in the Bill for the
Delegated Powers and Regulatory Reform Committee prepared by
HM Treasury
A.
INTRODUCTION
1. This Memorandum has been prepared for the Delegated Powers and Regulatory
Reform Committee to assist with its scrutiny of the Budget Responsibility and
National Audit Bill [HL] (“the Bill”). The Bill was introduced in the House of
Lords on 21 October 2010. This memorandum discusses the Bill as introduced
into the Lords.
2. This memorandum identifies the provisions of the Bill that confer powers to make
delegated legislation. For each power the memorandum explains:

The purpose of the delegated power;

Why matters are to be left to delegated legislation;

The way in which the power is expected to be used; and

The nature of, and justification for, the Parliamentary procedures
which apply.
3. This memorandum discusses the delegated powers in the order in which they
appear in the Bill.
B.
THE DELEGATION OF POWERS
UNCLASSIFIED
1
UNCLASSIFIED
4. In deciding whether subordinate legislation is the appropriate vehicle for any
particular provision, the Government has had regard to the need to ensure
flexibility to changing circumstances and the difficulties associated with including
detailed and technical provision on the face of the Bill.
C.
OVERVIEW
5. The Bill imposes a range of duties on the Treasury with regard to the formulation
and implementation of fiscal policy; it establishes the Office for Budget
Responsibility; and it modernises the governance arrangements for the National
Audit Office.
6. Part 1 of the Bill introduces a new framework for the formulation and
implementation of fiscal policy. It requires the Treasury to prepare and lay before
Parliament a statutory document to be known as the Charter for Fiscal
Responsibility (“Charter”) that will set out, among other things, the Treasury’s
fiscal policy objectives and fiscal mandate. The Charter will require the approval
of the House of Commons. The Bill also establishes the Office for Budget
Responsibility (the “OBR”) with the function of examining and reporting on the
sustainability of public finances, including by preparing fiscal and economic
forecasts and an assessment of the extent to which fiscal policy has delivered, or is
likely to deliver, the fiscal mandate. Three of the members, constituted as the
Budget Responsibility Committee, will be appointed on the basis of their
professional expertise. The Charter will contain guidance to the OBR as to how it
is to exercise its functions.
7. Part 2 of the Bill modernises the governance arrangements for national audit. The
position of the Comptroller and Auditor General (“C&AG”) as an independent
officer of the House of Commons is continued but the length of appointment is
limited to ten years. It creates a new corporate governance structure for the
National Audit Office (“NAO”), whose functions will include providing resources
for the C&AG’s functions, monitoring the execution of those functions and
approving the provision of certain services. The structure of the NAO will be
majority non-executive and be led by a non-executive chair. The C&AG will be
the NAO’s chief executive but will not be an NAO employee. Within the new
UNCLASSIFIED
2
UNCLASSIFIED
governance framework the C&AG continues to have complete discretion in the
carrying out of the C&AG’s functions.
8. The provisions in Part 2 of the Bill cover the same subject matter and are
substantially identical to those that were contained in Part 11 of the Constitutional
Reform and Governance Bill. That Bill was considered in the Seventh Report of
2009-10 [HL 77] by the former Committee but it made no comments on Part 11.
9. Part 3 makes provision in relation to consequentials, commencement and title.
10. The Committee is referred to the explanatory notes accompanying the Bill for
further background.
D.
PART
1
BUDGET
RESPONSIBILITY
–
PROVISIONS
FOR
DELEGATED LEGISLATION
11. Part 1 of the Bill imposes duties –
a.
on the Treasury to i
prepare a Charter relating to the formulation and implementation of
fiscal and debt management policy, including guidance to the OBR;
and
ii.
produce a Financial Statement and Budget Report for each financial
year according to the rules set out in the Charter; and
b. on the OBR to examine and report on the sustainability of the public finances.
12. The Charter is not delegated legislation. However it will occupy a prominent
position as the vehicle for the Treasury to articulate its fiscal policy and to provide
guidance to the Office. There are no other delegated powers in Part 1 of the Bill,
although clause 28 enables the Treasury to make provision for consequential
amendments to be drafted. This is discussed below.
UNCLASSIFIED
3
UNCLASSIFIED
Clause 1: Charter for Budget Responsibility
Power conferred on: Treasury
Powers exercised by: Charter
Parliamentary Procedure: affirmative, Commons only
13. Clause 1(1) requires the Treasury to prepare the Charter. The content of the
Charter is not limited but it must in particular set out:
a. matters relating to the Treasury’s fiscal policy (its objectives, the particular
fiscal targets of the day (“the fiscal mandate”) and matters to be included
in Budgets (see clause 1(2)); and
b. guidance to the Office for Budget Responsibility (see clause 6).
14. The Government considers that a statutory document is the most appropriate place
for these provisions. The rationale is discussed below, divided between the two
main contents of the Charter.
Matters relating to the Treasury’s fiscal policy
15. The Charter will set out the Government’s new framework for the formulation and
implementation of fiscal policy by the Treasury. Such matters are more
appropriately contained within a statutory document such as the Charter rather
than in statute. This is because the provisions are largely descriptive in nature,
incorporating accounting and other technical terms, which are not hard-edged,
quantitative provisions and will be more appropriately and effectively explained
within a technical document.
16. For example, the Government intends to set out its mandate for fiscal policy in the
Charter. In broad terms, the mandate will set a target(s) for fiscal policy consistent
with the Government’s fiscal policy objectives. The Chancellor of the Exchequer
announced the Government’s mandate for this Parliament in the June Budget. It is
“to balance the cyclically-adjusted current budget by the end of the rolling, fiveyear forecasts”.
UNCLASSIFIED
4
UNCLASSIFIED
17. It was possible to include the fiscal targets in the Fiscal Responsibility Act 2010
(“FRA 2010”) previously because the targets set through that Act were very
specific and numerical.
The fiscal objectives and mandate as described above
and the other contents of the Charter, however, will be more descriptive in nature
and lend themselves to the Charter, rather than necessitating potentially complex
legislation.
18. The Government, then in Opposition, argued against placing fiscal policy targets
in legislation. Such opposition was a feature of the FRA 2010 debates in
Parliament.
Guidance to the Office for Budget Responsibility
19. The Bill also provides for the Charter to include guidance for the OBR on how it
should perform its functions (clause 6). Similar to the fiscal provisions above, the
Government considers that a statutory document is the most appropriate vehicle
for the communication of guidance.
20. The contents of this part of the Charter will be guidance to the OBR that it will
have a duty to act consistently with. Legislation is not an appropriate vehicle for
detailed guidance to a public body, which by its nature needs to be informal and
flexible. It is considered that the need for any guidance to the OBR to be
transparent is sufficiently important for the guidance to be included in the Charter,
which is subject to the approval of the House of Commons before it becomes
effective.
The role of Parliament
21. While the Government does not consider the contents of the Charter should be in
legislation, it does believe that the importance of the Charter justifies the
requirement that it should be laid before Parliament and an affirmative procedure.
Because the Charter relates to fiscal policy, approval of the Charter is subject to
House of Commons approval only.
22. As noted above, the predecessor of the Charter is the Code for Fiscal Stability,
established through the Finance Act 1998.1 This had the same role for Parliament
1
Finance Act 1998 (c.36) section 155
UNCLASSIFIED
5
UNCLASSIFIED
as proposed for the Charter: a statutory document subject to the affirmative
procedure in the Commons.
E.
NATIONAL AUDIT
Clause 13: remuneration arrangements
Powers conferred on: the Treasury
Powers exercised by: order made by statutory instrument
Parliamentary procedure: negative, Commons only
23. Clause 13(7) allows the Treasury to disapply or modify the application of
legislation to give effect to any agreed pension element of the C&AG’s
remuneration arrangements. The power is restricted to purposes that are
supplementary to pension arrangements made under this clause.
24. The interaction of pension and tax legislation is highly complex and is subject to
regular change. If a pension element is included in the C&AG’s remuneration
arrangements, the form that element takes would be the subject of individual
agreement on each occasion between the Prime Minister and the chair of the
Public Accounts Committee under subsection (1). It is not practical to draft
detailed provisions for the face of the Bill before the form of any pension
arrangement is known. Further, to do so would be too inflexible since subsequent
appointments may involve different pension arrangements and would require
different modifications.
25. The terms of the pension will have already been agreed between the Prime
Minister and the leader of the Public Accounts Committee. It is therefore
considered that the negative procedure provides sufficient Parliamentary
oversight. Because the provision is financial, the regulations are subject to House
of Commons approval only. A similar supplementary power currently exists under
section 13(10) of the Superannuation Act 1972 for the C&AG’s pension. That
power is subject to the procedure proposed here.
UNCLASSIFIED
6
UNCLASSIFIED
Clause 19: Auditing of companies
Powers conferred on: the Treasury
Powers exercised by: order made by statutory instrument
Parliamentary procedure: negative
26. This clause would modify the Parliamentary procedure for the delegated power in
section 25(6) of the Government Resources and Accounts Act 2000 (“the 2000
Act”) when such orders are used to make non-profit-making companies subject to
public audit by the C&AG. A non-profit-making company which has been so
designated is exempt from having a statutory audit provided it satisfies the
conditions in section 482 of the Companies Act 2006 for that financial year.
27. The power in the 2000 Act is used to make Non Departmental Public Bodies
(“NDPBs”) subject to public audit in line with a policy recommended by Lord
Sharman in 2001, which has been consistently endorsed by both Houses of
Parliament. Following changes in the Companies Act 2006, the power can now
be used for non-profit-making companies. The population of such NDPBs
changes more frequently than that of non-corporate NDPBs so such orders are
expected to be needed regularly. The government believes that it remains
appropriate to keep orders that concern non-corporate NDPBs subject to the
affirmative procedure. Those bodies typically have bespoke constitutions and
there is often a need to make consequential amendments to other legislation at the
same time, using the consequential power of section 25(7)(b) of the 2000 Act. But
Companies Act companies are more homogenous and when the power is used for
them there is no need to amend bespoke primary legislation. We believe the
negative procedure provides appropriate scrutiny for orders that only make nonprofit-making corporate NDPBs subject to audit by the C&AG. The effect of such
orders will be to make the body subject to enhanced parliamentary scrutiny by an
auditor who reports to Parliament.
UNCLASSIFIED
7
UNCLASSIFIED
Clause 25(3): definitions; Paragraph 1(11) of Schedule 4: transfer of property
etc; and, Paragraph 5(4) of Schedule 4: old Comptroller and Auditor General to
continue to be Comptroller and Auditor General.
Powers conferred on: the Treasury
Powers exercised by: order made by statutory instrument
Parliamentary procedure: none
28. These provisions concern the commencement of the main elements of the new
national audit structures. The Treasury may appoint a day on which the respective
provisions are to take effect. The provisions set the start of the first financial year
for the new NAO (clause 25(3)); the day on which certain property, rights and
liabilities are to transfer from the C&AG to the new NAO (paragraph 1(11) of
Schedule 4); and the day from which the incumbent C&AG will be treated as
having been appointed under the new clauses (paragraph 5(4) of Schedule 4).
29. These powers, which concern the transition from the current structures to the new
ones, are identified separately from the other commencement provisions in this
Part to provide greater clarity. As with commencement orders generally, there is
no Parliamentary procedure for these powers although the details of the property
transfer scheme are subject to approval by a Parliamentary committee, the Public
Accounts Commission, see paragraph 1(2) of Schedule 4.
Clause 27 and Schedule 6 – Powers of the National Assembly for Wales
Power conferred on: the National Assembly for Wales
Power exercised by: Measure or Act of the National Assembly for Wales
Parliamentary procedure: none
30. The National Assembly for Wales may pass Assembly Measures in relation to the
matters listed in Part 1 of Schedule 5 to the Government of Wales Act 2006 (“the
2006 Act”). An Assembly Measure may include any provision that could be made
by an Act of Parliament, within the limits on the Assembly's legislative
competence set out in section 94 of, and Schedule 5 to, the 2006 Act.
UNCLASSIFIED
8
UNCLASSIFIED
31. Paragraph 3 of Schedule 6 confers legislative competence on the Assembly by
inserting a new matter 14.1 into field 14 (public administration) in Part 1 of
Schedule 5. Matter 14.1 enables the Assembly to pass Measures relating to certain
aspects of the office and activities of the Auditor General for Wales, set out in
paragraphs (a) to (j) of the matter.
32. Paragraphs (a) to (d) of matter 14.1 concern the Auditor General’s terms of
appointment, the number of times a person may be appointed Auditor General,
and the other activities of a serving or former Auditor General. Paragraphs (e) to
(g) concern the manner in which the Auditor General carries out activities, the
authorisation of other people to perform the Auditor General’s functions, and
oversight and supervision of the Auditor General. Paragraphs (h) and (i) concern
the provision of resources for the Auditor General and the charging of fees or
other amounts. Paragraph (j) covers the restatement of the law relating to the
Auditor General.
33. Part 2 of Schedule 5 to the 2006 Act sets out general restrictions on the
Assembly’s legislative competence.
Paragraph 4 of Schedule 6 amends
paragraphs 3 and 6 of Part 2, so that the restrictions which prevent a Measure
amending certain provisions of the Government of Wales Act 1998 (“the 1998
Act”) and the 2006 Act do not apply to Measure provisions based on the
competence provided by matter 14.1. Instead, new paragraph 6(5) applies a
narrower restriction to prevent an Assembly Measure from modifying paragraph 3
of Schedule 8 to the 2006 Act (which protects the independence of the Auditor
General), subject to an exception in new paragraph 6(6), which provides that this
restriction does not prevent the Assembly giving a role to an Assembly Committee
which satisfies certain requirements of independence from the Welsh Assembly
Government.
34. Assembly Measures are made by being passed by the Assembly and approved by
Her Majesty in Council. A proposed Assembly Measure will be scrutinised by the
Assembly in accordance with sections 97 and 98 of the 2006 Act and the
Assembly Standing Orders. Standing Order 23 provides for the Assembly to
debate and vote on the general principles of a proposed Assembly Measure, for
consideration of the details of the proposal first by a committee and then by the
UNCLASSIFIED
9
UNCLASSIFIED
full Assembly, and for a final stage where the Assembly can pass or reject the
proposal.
35. Part 4 of the 2006 Act also includes provisions (“the Assembly Act provisions”)
which would enable the Assembly to pass laws known as Acts of the Assembly.
Under sections 103 and 105 of the 2006 Act, the Assembly Act provisions may
only be brought force if the majority of those voting in a referendum held
throughout Wales vote in favour. If brought into force, they would enable the
Assembly to pass Acts in relation to the subjects listed in Part 1 of Schedule 7 to
the 2006 Act, within the limits on the Assembly's legislative competence set out in
section 108 and Schedule 7.
36. Paragraph 14 in Part 1 of Schedule 7 to the 2006 Act already includes the subject
“Audit, examination, regulation and inspection of auditable public authorities”.
Paragraph 6 of Schedule 6 amends that paragraph by inserting a new subject
“Auditor General for Wales”. The new subject would enable an Act of the
Assembly to make similar types of provision in relation to the Auditor General as
matter 14.1 in Schedule 5 to the 2006 Act (but it is worded differently in view of
the subjects already included in Schedule 7 and the more general drafting style of
that Schedule).
37. Part 2 of Schedule 7 to the 2006 Act sets out general restrictions on the
Assembly’s competence to pass Acts.
Paragraph 7 of Schedule 6 amends
paragraphs 2 and 5 of Part 2, which prevent an Act of the Assembly amending
certain provisions of the 1998 Act and 2006 Act. The amendments will enable an
Act of the Assembly to modify Schedule 8 to the 2006 Act, which deals with the
office of Auditor General, and will enable an Assembly Act to modify other
provisions of the 1998 and 2006 Acts if the purpose of the amendment relates to
the oversight or supervision of the Auditor General. However, paragraph 7(3) of
Schedule 6 also inserts a restriction preventing an Act of the Assembly from
modifying paragraph 3 of Schedule 8 to the 2006 Act, subject to an exception
allowing functions to be conferred on Assembly Committees which are
independent from the Welsh Assembly Government.
38. Acts of the Assembly would be made by being passed by the Assembly and
receiving Royal Assent. Assembly Bills would be scrutinised by the Assembly in
UNCLASSIFIED
10
UNCLASSIFIED
accordance with sections 110 and 111 of the 2006 Act and Assembly Standing
Orders. The Standing Orders would provide for the Assembly to debate and vote
on the general principles of a Bill, for consideration of the details of the Bill, and
for a final stage where the Assembly could pass or reject the proposal.
Paragraph 1(1) of Schedule 3: strategy
Power conferred on: the NAO and Comptroller and Auditor General
Power exercised by: strategy document
Parliamentary procedure: approval by Public Accounts Commission
39. This power provides for the NAO and the C&AG to prepare a strategy for the
national audit functions and to review it at least every twelve months. Among the
functions of the strategy is to plan the allocation of resources by the NAO for the
C&AG’s functions. The strategy is binding on both the NAO and the C&AG, by
paragraph 1(7) of Schedule 3.
40. The main requirements of the strategy are set out in primary legislation,
particularly its role in allocating resources. The Public Accounts Commission has
to approve the strategy, and may revise it before it does so (see paragraph 1(5) of
Schedule 3). Since the detailed content of the strategy document will by its nature
be more strategic than legal and it will be subject to regular revision, this degree
of Parliamentary scrutiny is considered appropriate.
Paragraph 6(1) of Schedule 3: delegation of Comptroller and Auditor General’s
functions
Power conferred on: the Comptroller and Auditor General
Power exercised by: administrative scheme
Parliamentary procedure: approval by Public Accounts Commission
41. This power allows the C&AG to delegate his functions to employees of the NAO
in accordance with a scheme approved by the Public Accounts Commission. It is
considered that prescribing the scope of permitted delegation on the face of the
Bill would unduly constrain the ability of the C&AG to make delegation decisions
UNCLASSIFIED
11
UNCLASSIFIED
in response to operational needs. The requirement for the scheme to be approved
by the Public Accounts Commission will provide the necessary flexibility while
providing adequate scrutiny.
Paragraph 8(2) of Schedule 3: audit fees etc
Power conferred on: the National Audit Office
Power exercised by: administrative scheme
Parliamentary procedure: requires approval of Public Accounts Commission
42. This power allows the NAO to prepare a scheme for charging fees for audits. The
scheme requires the approval of the Public Accounts Commission. It is binding
upon the NAO.
43. The primary legislation sets high level parameters for fee charging by the NAO,
including requiring ministerial consent where fees are charged to bodies acting on
behalf of the Crown, and for NAO-approved services, providing for fees to be
consistent with the governing agreement. Normal public law principles mean that
with a fee power of this type fees may only recover the costs of providing the
service. It is not considered necessary for the details of the fee scheme also to be
set out in primary legislation. The requirement for approval by the Commission
provides a greater level of scrutiny than the current charging arrangements under
section 4 of the National Audit Act 1983. This new level of scrutiny is considered
appropriate since the Bill makes more explicit the oversight role performed by the
Commission.
Paragraph 10(1) of Schedule 3: code of practice
Power conferred on: the National Audit Office and Comptroller and Auditor General
Power exercised by: code of practice
Parliamentary procedure: requires approval of Public Accounts Commission
44. The power requires the NAO and the C&AG to draw up a code of practice. The
code is to deal with their relationship. The mandatory and optional contents of the
UNCLASSIFIED
12
UNCLASSIFIED
code are set out in paragraph 12 of Schedule 3. The code is binding on them
under paragraph 10(9) of Schedule 3 which requires each to comply with it.
45. The Bill requires the code to be approved by the Public Accounts Commission. It
must also be laid before Parliament. It is considered that those obligations provide
an appropriate level of scrutiny and transparency given that the principles as to the
allocation of responsibilities between the NAO and the C&AG to which the code
gives further effect are on the face of the Bill in the main clauses and in Schedule
3.
Paragraph 1(1)(b) of Schedule 4: transfer of property etc.
Powers conferred on: the Comptroller and Auditor General
Powers exercised by: scheme
Parliamentary procedure: approval by Commission
46. The paragraph makes transitional arrangements for the property that is to be
transferred from the old NAO (where it is held in the name of the C&AG) to the
new NAO to be described in a scheme.
47. The C&AG is expected to transfer all property, rights and liabilities (except for
audit contracts) to the new corporate NAO, whose duty it will be to manage
resources for the C&AG. Providing for the transferred assets to be described in a
scheme, rather than on the face of the Bill, provides greater operational flexibility
to tailor the transfer to such property, rights and liabilities as are in existence at the
time, and to make pragmatic exceptions if that is appropriate. This is an
established approach to the property transfers that occur when public bodies are
reorganised which makes the complex process easier to manage. The
Parliamentary oversight provided by the requirement for the Public Accounts
Commission to approve the scheme is considered sufficient for a reorganisation in
which the property will remain with the successor body.
Paragraphs 27-28 of Schedule 5: consequential amendments relating to Part 2
UNCLASSIFIED
13
UNCLASSIFIED
Power conferred on: the National Assembly for Wales
Power exercised by: Measure of the National Assembly for Wales
Parliamentary procedure: none – approved by Her Majesty in Council
48. Paragraphs 27 and 28 of Schedule 5 amend Schedules 5 and 7 to the Government
of Wales Act 2006 respectively.
49. Part 2 of Schedule 5 to the 2006 Act sets out general restrictions on the legislative
competence of the National Assembly for Wales. Paragraph 5 provides that a
provision of an Assembly Measure cannot make modifications of any functions of
the C&AG (or confer power to do so by subordinate legislation). To ensure that
this restriction reflects the changes made by Part 2 of the Bill, this amendment
extends the restriction to functions of the National Audit Office.
50. Part 3 of Schedule 5 to the 2006 Act sets out exceptions to the general restrictions
on the Assembly’s competence in Part 2. Paragraph 8 provides that those general
restrictions do not prevent a provision of an Assembly Measure modifying any
enactment relating to the C&AG (or conferring power to do so by subordinate
legislation) if the Secretary of State consents. To ensure that this exception
reflects the changes made by Part 2 of the Bill, this amendment extends the
exception to functions of the National Audit Office.
51. Parts 2 and 3 of Schedule 7 to the 2006 Act set out general restrictions and
exceptions to those restrictions in relation to the alternative competence regime
for Acts of the Assembly to which Schedule 7 applies.
The Assembly Act
provisions in Part 4 of the 2006 Act may only be brought force if the majority of
those voting in a referendum held throughout Wales vote in favour. If brought
into force, they would enable the Assembly to pass Acts in relation to the subjects
listed in Part 1 of Schedule 7 to the 2006 Act, within the limits on the Assembly's
legislative competence set out in section 108 and Schedule 7 but subject to the
general restrictions and exceptions in Parts 2 and 3 of that Schedule. The
amendments made by paragraph 28 of this Bill are equivalent to those described
above for Schedule 5, in that they add “the National Audit Office” to extend the
UNCLASSIFIED
14
UNCLASSIFIED
general restriction and the exception to the Assembly’s competence under Part 4
of the 2006 Act.
F.
PART 3: FINAL PROVISIONS
Clause 28 – Power to make consequential provision
Powers conferred on: Treasury
Power exercised by: order made by statutory instrument
Parliamentary procedure: negative
52. This clause provides for a power for the Treasury to make modifications of any
subordinate legislation as it considers appropriate as a consequence of any
provision of the Bill. The power in this provision is to be exercised by statutory
instrument.
53. Such an order can be used to amend or revoke any provision made in secondary
legislation in consequence of the provisions in this Bill. It may also include
supplemental, incidental, transitional, transitory or saving provision. This power is
by its nature consequential and limited by the provisions of this Bill. The power
has been taken to ensure that any consequential changes can be addressed.
54. The order is subject to annulment in pursuance of a resolution of either House of
Parliament, that is, a negative procedure.
This is the appropriate procedure
because the power is to make consequential provisions only, it does not amend
primary legislation and is limited in scope. Use of the negative procedure for this
power is consistent with use of the negative procedure for powers with similar
purpose and effect.
Clause 29 – Commencement
UNCLASSIFIED
15
UNCLASSIFIED
Power conferred on: Treasury
Power exercised by: order made by statutory instrument
Parliamentary procedure: none
55. This clause provides powers concerning the commencement of the Bill. The
Treasury may by order appoint a day on which the provisions of Parts 1 and 2
(except for clause 27) are to come into force and may make different provision for
different purposes. There is also a power to make supplemental, incidental,
consequential, transitional, transitory or saving provision in connection with the
commencement of any provision of the Act. This power is necessary to ensure a
smooth transition to the new arrangements provided for in this Bill. As with
commencement orders generally, there is no Parliamentary procedure for these
powers.
UNCLASSIFIED
16