State of independence: interview with departing OBR chief Robert Chote

4 Nov 20

Stepping down last month after 10 years in charge, Robert Chote has entrenched the Office for Budget Responsibility as a vital cog in the UK’s fiscal machinery.

In October, Robert Chote bowed out after a decade as chairman of the UK’s Office for Budget Responsibility.

The end of his two terms at the helm of the government’s official independent fiscal watchdog elicited a raft of warm social media tributes.

Chancellor Rishi Sunak tweeted that Chote’s legacy at the OBR was leaving behind an “expert and independent organisation which holds us to account for our management of the public’s money”.

But Chote’s 2010 appointment, which followed eight years as director of the Institute for Fiscal Studies, almost never happened.

“After the 2010 election, I sounded out the Treasury informally about whether they would welcome an application. They weren’t particularly enthusiastic at that point,” he reveals.

“I think David Cameron and Nick Clegg were not very pleased with the IFS’s coverage of the first coalition Budget, which we said was regressive. I was told ‘You are not necessarily what they are going to be looking for’.”

Within weeks, however, Chote’s prospects were completely transformed by a political row.

Questions were raised about the fledgling OBR’s independence after it published positive employment figures a day earlier than scheduled – allowing Cameron to wrongfoot the Labour opposition at prime minister’s questions.

Chote says the ensuing “bumpy water” melted resistance within government towards his overtures. “So I applied and the rest is history,” he says. 

Chote admits that he initially harboured some personal doubts about the ability of the OBR to establish itself as a body with a reputation for impartiality.

“Joining from the IFS, which had a very long-established internal culture of independence, I was unsure how easy it was going to be to recreate and build on that in an official organisation.”
 
The candid admission demonstrates confidence that this worry has proven misplaced.

“I have been surprised that the relationship with government has run as smoothly as it has,” Chote says.

Of the four chancellors with whom he has worked, he says: “By and large, they have been very straight with us. None of them have been particularly neurotic, or insecure, nor deeply hostile to the notion of the OBR.”

From austerity to pandemic

PF sits down with Chote less than a week after his final day in post, in the tea room of an upmarket Westminster hotel.

The paltry number of customers at the other tables, and the lack of bustle in the surrounding central London streets, provide stark reminders of the ongoing damage wrought by Covid-19.

Chote’s spell at the OBR has ended, as it began, scrutinising a UK government wrestling with the fallout from a supposed ‘once-in-a-lifetime’ economic shock.

The majority of the OBR’s first decade largely ran in parallel with the government’s austerity programme, a response to the global financial crisis of 2007-08.

The idea of budget ‘responsibility’ might appear very ‘on brand’ during a period where government policy was to drive down the government deficit. But Chote denies the body was in any way a ‘handmaiden of austerity’.

“The OBR model should be robust, whether the government is tightening or loosening,” he says. “It merely has the task of forecasting and the task of casting transparency on the public finances.”


“Ministers are not very good at dealing with surprises, even positive ones – it puts them in a position they are not expecting”


Although policy advice sits outside its remit, the organisation’s forecasts did have some impact on the course of austerity, Chote says.

“When we said it looked likely that the government was not on course to meet its fiscal rules in 2011, it extended the expected period of spending constraint. But there were other occasions when we said it looked like the rules were not going to be met and they said, ‘Well, we would rather not meet the rules but do what’s necessary’.” 

Chote pinpoints the end of austerity as June 2018, when the then prime minister Theresa May pledged billions extra for the NHS. But it has been the Brexit timetable and Covid-19 that have proved much more challenging.

“The whole process of setting out a forecast process timetable well in advance of sticking to it has become more complicated in the past couple of years” he says. 

In particular, the pandemic has fundamentally disrupted the established rhythm of the OBR.

“All of our working practices, outlined in legislation, were built around the fact that fiscal policy decisions, by and large, take place twice a year – in the Budget, and in the autumn or spring statement,” Chote says.

“Normally, the OBR marshals 70 or 80 decisions, looks at them individually and in total, and puts that in the context of a forecast. Quite understandably, at the moment, the government is changing tax and spending policy as and when it sees the need to do so at much higher frequency than it would normally do.”

In response, the OBR has revamped its monthly commentary, showing the impact of changes “in real time as far as is possible”, Chote says.

“We have to run much more of a running commentary model than we would normally wish or that would normally be sensible to do,” he adds. The body’s fiscal sustainability reporting is now presented with a number of scenarios rather than as a single central forecast. 

Such an approach is unavoidable, but “clearly not ideal”, Chote says.

“You want to make sure that, at some point, you can get back to giving a coherent, internally consistent, comprehensive view of the outlook for public finances that reflects all the policy.

"You don’t want to get into a situation where the forecaster and policymaker are constantly chasing after each other, where you can’t put it all together. It is important that this doesn’t become entrenched as business as usual.”

Succession

Handing over (remotely) to new chairman Richard Hughes has been made easier by his successor’s existing knowledge of the OBR, Chote says.

“For some of the period he was at the Treasury [as director of fiscal policy], he was one of our main points of contact.” Hughes also worked at the International Monetary Fund, dealing with other countries’ equivalent institutions, and at the French Haut Conseil des Finances Publiques.

“So it wasn’t like having somebody completely new to the task,” Chote says. “He had 90% of it down already.”

Chote has not offered Hughes specific advice. But he says one of the biggest lessons from his tenure is that “ministers are often better than you might think at dealing with bad news”.

But there is a catch.

“They are not very good at dealing with surprises, even positive ones – it puts them in a position they are not expecting.

"Ministers may disagree with the judgments you make and express their upset on occasions. That can be uncomfortable. But if you run the process properly, it becomes much more manageable.”

Looking back

Chote lists his proudest achievement at the watchdog as the quality and mix of staff he assembled.

“There are occasionally people working in the Treasury or elsewhere where you think the OBR is their spiritual home.

"They have a combination of integrity and a slightly nerdy devotion to going the extra mile to work out some particularly complicated or abstruse piece of public sector accounting. There is always a sense of satisfaction when somebody like that comes on board. You know that a small warp in the universe has been corrected.”

He also points to the importance of maintaining organisational diversity – of not only gender and ethnicity but of experience and outlook.

As former economics editor at the Financial Times, Chote has not been afraid to recruit from outside the fiscal policy-making machine.

However, bagging staff with inside knowledge of government was also crucial, he says.

Of Graham Parker, who served on the OBR’s budget responsibility committee between 2010 and 2018, he says: “He was absolutely the right person to have. He knew where lots of the bodies were buried, because he buried quite a few of them himself when he was in the Treasury.”

Chote’s worst moment?

“One time, there were lots of us in the office over the weekend, getting a major forecast ready for the Sunday night. Suddenly, a worker shoved a spade through an electric cable outside and the whole system went down.

"Everybody had to get their work onto memory sticks as quickly as possible and carry on elsewhere. It was a valuable learning experience for business continuity planning, let’s put it that way. But it took a number of years off a few people’s lives.”

Chote says he is keen to eventually return to a role in the public service (interestingly, he counts journalism in this category).

In the immediate term, he has accepted a position as visiting professor at King’s College, London, where he aims to appraise the history and role of the OBR.

“I am going to try to do something I failed to do on every previous occasion I have left a job – to take time to write down some thoughts and reflections on the period that has gone past,” he says.

For now, he voices satisfaction that the OBR has helped remove the optimism bias that afflicted fiscal predictions when they were made by Treasury officials.

“The ‘errors’ in our forecasts are smaller on average than they were over the preceding 20 to 30 years,” he says, proudly. The organisation he played a crucial role in establishing is built on solid foundations, Chote says.

“There is a built-in incentive in the model for the OBR and the Treasury to play nicely. Because the OBR is the official forecaster, and its output is an integral part of the whole budget-making process, there is a very strong incentive for the government to give it the information it needs to be able to do the job properly. If the process falls to pieces, it is damaging for both institutions.” 


‘Best-in-class forecasting’

Two of those who worked in the heart of the Treasury praise the outgoing Office for Budget Responsibility chairman for his impact on public financial management

Philip Hammond

Just under 11 years ago, as shadow chief secretary to the Treasury, I was sitting on the opposition front bench in the House of Commons, listening to what would be the Labour government’s final Budget.

With the benefit of hindsight, what was remarkable was not the content of that announcement, but the fact that it was the last Budget ever in which the forecast figures announced by the chancellor were entirely the product of Treasury officials.

As in every Budget in history that had gone before it, the chancellor of the day announced his plans and then told the world his forecast of their effect on the economy and the public finances – for GDP growth, for public spending, for the deficit and for the total public debt. Hey presto!

In 2010, George Osborne, by establishing the Office for Budget Responsibility as an independent body, answerable to parliament, decisively ended the practice of chancellors marking their own homework by forecasting the outcomes of their own Budget initiatives.

Just as Gordon Brown did in 1997 – by enshrining the independence of the Bank of England in legislation and ending the even more absurd practice of governments using interest rates as a short-term political tool – creating the OBR improved British public financial management forever.

Robert Chote, as chairman of the budget responsibility committee for almost the entirety of its existence, established the OBR as a best-in-class example of independent public financial forecasting.

The OBR has improved the way Budgets are made. No more last-minute ‘inspirations’ by embattled chancellors. Instead, an orderly process of successive rounds of iterative refinement as the chancellor proposes and the OBR disposes – returning its provisional outcome verdicts on the chancellor’s proposed budget initiatives to No. 11 for further work.

In this way, a modern Budget is made – the chancellor’s thinking shaped by a rigorous, independent assessment of the forecast consequences of his planned initiatives, rather than internally generated wishful thinking. 

I would like to add my voice to the many that I know will be raised in praise of Robert and his enormous contribution to the cause of sound public financial management through his firm hand on the tiller of the OBR over its first 10 years.

He has not only done a great service to the people of this country but has contributed to raising the standards of public financial management across the world as others seek to emulate the success of the OBR.

Richard Hughes, the new chairman of the BRC, will be a worthy successor to continue Robert’s legacy, and I wish him every success as he takes the OBR forward on the next leg of its journey.

Philip Hammond was UK chancellor of the exchequer between 2016 and 2019


Rupert Harrison

As a brand new institution, it was incredibly important for the OBR to be able to establish its independence and credibility early on.

Robert was always the stand-out choice to be the first permanent head of the OBR, and he did a brilliant job, even if - and maybe partly because – he often found ways to embarrass the government of the day.

I think the test of his legacy is that the OBR is now universally seen as a permanent part of the UK’s economic policy framework and as a transparent and independent source of information on fiscal policy.

Rupert Harrison is portfolio manager at investment manager BlackRock and former chief of staff to ex-UK chancellor of the exchequer, George Osborne

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