Recently in Manchester three key national figures discussed how to improve the scrutiny of how British government spends its money: Margaret Hodge MP (Lab), chair of the Public Accounts Committee (PAC), Bernard Jenkin MP (Con), chair of the Public Administration Select Committee (PASC); and Robert Chote, chair of the Office for Budget Responsibility (OBR). The session was chaired by Colin Talbot, Professor of Government at the University of Manchester, a leading expert on the topic. Here we publish an edited transcript of the first contribution to that discussion by Robert Chote.
Our job is to look at how much the government is going to spend in the future. Ours is an ex-ante forecasting role, we are not tasked with looking back and seeing how well the public’s money was spent in the past.
We were created shortly after the coalition government was elected. We are a non-departmental public body. We’re a quango. We are small. Three of us are independent individuals appointed to oversee it, and we have a civil service staff of about eighteen. Our overarching role is to look at the sustainability of the public finances, but that splits into four main tasks.
The first is that we produce the five-year ahead forecasts for the economy and for the public finances that, previously, Chancellors of the Exchequer were responsible for themselves. The government has, in effect, contracted out the task of producing the official forecast to us and it is then for ministers, in effect, to respond in public and say whether they agree or disagree and then to set their policy decisions accordingly.
The second thing we do is to use those two five-year forecasts to assess whether the government is on course to hit the fiscal targets that it has set itself. This government has two targets: one about the amount of money that it should borrow for particular purposes in any given year, and another target for the total amount of debt that the public sector should accumulate. And our task is simply to say whether we believe that, on existing policy, the government has a better than fifty percent chance of achieving the objectives that it has set itself.
The third thing we do is to look at the estimates of what particular tax and welfare spending measures that governments announce in budgets and autumn statements are going to cost or raise. So the government will come up with an estimate of that and discuss it with us, in confidence, before a budget or an autumn statement. We’ll have a toing and froing over that, but the government has to publish an estimate of, for example, what a change in the higher rate of income tax or a decision to restrict child benefit is going to cost or raise. We then say, in public: yes we agree, or no we don’t, or you didn’t give us enough time or information to reach a judgement.
The fourth and final function that we have is to look at the long-term health of the public finances, which we do in two ways. The first is to look at the public sector’s balance sheet; its assets and liabilities. Not just the amount of money coming in and going out in any given year, but its balance sheet. In addition to the balance sheet, this long-term analysis also includes looking at long-term projections over a fifty-year horizon of how much tax you think the government is going to bring in and how much it’s going to spend on existing policies. And that allows you to bring in issues like the influence of demography and the running down of North Sea oil reserves.
The OBR was created primarily out of a sense that people didn’t trust ministerial forecasts. They thought they were infected with politically motivated wishful thinking.
Most other bodies of this type give policy advice. For example, our Swedish counterparts say whether they think particular tax or welfare policies are sensible or not. We don’t go anywhere near that. Tempting though it is to do so, our job is not to give policy advice. It is to give positive analysis from which other people can draw their own conclusions.
So there’s a notable contrast there, for example, with the Congressional Budget Office in the United States and the Parliamentary Budget Office in Australia where you have a much larger organisation, but which basically looks at proposals on taxation and spending brought, in the US case, from either party in either House of Congress.
Turning to the particular way in which we look at public spending, when we are forecasting public spending we need to think about spending in different categories because you have to approach those differently.
The key ones would be: public services spending, (schools, hospitals, etc, both current and capital spending); welfare spending (taking money from one part of the population and giving to others; pensions, Job Seekers Allowance, tax credits); debt interest; and other areas within the public sector. And we also need to have an eye on what local government is doing as well.
So, for things like debt interest and welfare payments, we explicitly forecast those based on what the rules are for entitlement and rates of those particular benefits, for example, and how we think the economy is going to evolve.
On debt interest, obviously we’re interested in how big the debts that the government is going to build up are going to be and what interest rates it has to pay on that.
But for the largest category, public services spending, we don’t look at what individual projects, like HS2 or Crossrail. What we do instead, because we’re ultimately interested in its implications for the public finances, not for value for money, is to say, will the government over- or under-spend the total envelope that it has set out for spending on public services? And so we need to reach a judgement on how the negotiations are going between the Treasury and government departments in general about coming in above, below or around these overall budgets.
Now, in terms of the Labour proposal that we should look at alternative policies: that is a much wider, and different, remit. If the OBR should look at the costing of other parties’ policies, one question is, what policies? At the moment we don’t look at the costing of individual public services policies. We look at individual tax and welfare spending measures. So do you want us to move into that sort of area? We have no expertise in saying whether HS2 will come in on budget or not. Do you want to push us in that sort of direction?
Another question is, which parties should we do it for? Just the government and the official opposition? Do we need to look at the manifestos separately of the two coalition partners? UKIP? Scottish Nationalists? etc? When our Dutch counterparts were given this task in 1986, they started off doing it for three parties; they now have to do it for nine. So this thing can mushroom.
When do we look at the policies? One consequence of the Dutch system of scrutinising this is that the parties have to come up with their manifestos much earlier. Our counterparts there publish their report twelve weeks prior to the general election. Here, I think it’s fair to say manifestos normally come out three to four weeks prior to the election at the very start of the campaign proper. So there would be a very different set of rules of the game that we would all have to adjust to.
Personally, I think that having independent scrutiny of opposition policies is a jolly good idea, in principle. It’s better for the parties. It’s better for policy development. It’s better for public debate. The Dutch have found it helps in putting together coalition agreements. But I think, from our point of view, the key thing is that it’s for Parliament to decide whether it wants us to play that role or not. To some degree, the IFS already play that role – they do scrutinise the manifestos prior to elections.
So the question is, do you want an official body to be brought into that politically contested area? If you did, we’d need more resources. We’d need the rights to access information and analysis within government, and that raises lots of interesting questions. At the end of the day, if parliament asks us to do that job, we’ll do it to the best of our ability, but it’s not our job to say whether we should do it or not.