Mixed reaction to Office for Budget Responsibility

17 May 10
The launch today of an economic forecasting quango for Budgets has met a mixed reaction from public sector commentators

By Jaimie Kaffash

17 May 2010

The launch today of an economic forecasting quango for Budgets has met a mixed reaction from public sector commentators.

The Office for Budget Responsibility, announced by Chancellor George Osborne, will make independent forecasts on the public finances for each Budget, including the emergency Budget on June 22. It will be headed by Sir Alan Budd, a founding member of the Bank of England’s Monetary Policy Committee in 1997.

An interim body will recommend the size of the permanent office, which ‘will not be a large body’, a Treasury spokesman told Public Finance. It comprises Budd, Geoffrey Dicks, chief economist at Novus Capital, and Graham Parker, former head of the Treasury’s public sector finances team. They will be supported by eight staff seconded from the Treasury.

The Treasury will still produce the bulk of the forecasting. But, instead of the chancellor making judgements based on this data, the new independent body will rule whether the government’s policy has a better than 50% chance of meeting fiscal targets.

Budd said: ‘We are not claiming that we shall get the fiscal forecasts right; it is easy to demonstrate that that is impossible… but every judgement will be ours and we guarantee the independence and integrity of our work.’ 

Charles Davis, senior economist at the Centre for Economics and Business Research, welcomed the decision. He said that having independent bodies, as opposed to a set of fiscal rules set out by the previous government, took the politics out of economic decision making.

‘When push came to shove, those rules just went out of the window in October 2008 when [they] really needed to bind the government,’ he told PF.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, also welcomed the decision, but told PF its success depended on the OBR’s credibility. It would be very hard for Osborne to ignore the body’s advice, he added.

But Colin Talbot, professor of public policy and management at Manchester Business School, warned that the body was ‘not credible’. He told PF that there was the immediate problem of producing a forecast for the coming Budget. ‘The idea that you can conjure up a body out of nowhere to deliver a forecast in 20 or 30 days is just crazy.’

He said that it would not take the politics out of economic decision making, because  its remit and parameters would be set by politicians. He added that to be truly independent, the office would have to be under the control of Parliament and not the executive. 

The establishment of the new body also went against the Conservative pledge to reduce the number of quangos, he said, and there was a cost issue. ‘I would have thought an organisation with somewhere between 50 and 100 staff would be needed to produce detailed forecasts.’

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