The Office for Budget Responsibility (OBR) is being touted as a really big reform to how the government ‘does’ fiscal policy. Essentially, the claim is that fiscal forecasting will be outsourced to the OBR which will be independent and therefore free of political interference. How does this claim stack up?

At the moment this job is done by HM Treasury. The allegation is that HMT has systematically gotten it’s own figures wrong, and that this is because of political interference. Remove the political interference and – puff – you get unbiased, objective, fiscal projections.

But for OBR to have any credibility it clearly needs two things: independence from political interference and the capacity to do it’s own projections.

The first is possible, but tricky. As a public body the OBR has to be responsible to someone. The way that such bodies have been made properly independent of the executive arm of government has been to make them accountable to parliament (like the Office of National Statistics and the National Audit Office). Even this doesn’t completely remove the problem, but it unclear that the OBR will have anything like this status – it is more likely to be a Non-Departmental Public Body (NDPB) that are rather less independent.

The second condition – capacity – seems unlikely to be delivered on the plans as currently announced. OBR seems to have a very small staff – just three principals plus some support staff. How OBR is supposed to produce credible projections to compete with those that the independent think-tanks like the Institute for Fiscal Studies (IFS) and the National Institute for Economic and Social Research (NIESR) already produce (and with some considerable credibility). City institutions also do their own projections.

How on earth will OBR compete with all of these well-established and pretty credible organisations unless it has its own independent analytic capacity?

And what about HMT? Will the Treasury really stop producing its own analysis? That seems hardly credible, or sensible – entrusting economic and fiscal forecasting to a new and untried body without having some continuing check. No Chancellor is simply going to accept OBR figures without having their own officials producing something to check them against.

Given the current proposals it appears OBR will not have it’s own, serious, analytic capacity to match HMT, or even the IFS or NIESR. Will it therefore be reliant on HMT’s own analysis and be merely an external auditor of these?

The proposals for OBR as they have so far been announced seem hardly up to the task of establishing its political independence and its credible capacity to produce independent analyses. At the moment it looks more like a gimmick than a serious reform.

One final point – a Budget is due in under 50 days. Does anyone seriously think that a new organisation can be set up and produce credible economic and fiscal projections, more credible than HMT or the think-tanks or the City – in just a few weeks?

POSTSCRIPT

OBR (or the Office of Budd’s Responsibility) has come in for some further criticsm and a few more facts have trickled out since I wrote this. First, a number of people have commented that Sir Alan Budd was asked to do preparatory work on OBR before the election (true) by the Tory party (also true) and that therefore it is not “new” and has some sort of track-record (untrue) or that it is a political body converted into a governmental one (partially true).

What is also true is that it has only 11 staff (including 8 seconded Hm Treasury officials). My point about its credibility (which has been challenged in some quarters) is simple: it can either derive its credibility from its status and derived authority, but that can only come from its proximity to government and thereby undermine its “independent” credibility; or it can come from establishing a track-record of accurate forecasts – which perforce takes time and painstaking effort and can’t be done overnight. Either way its hard to see how it can claim any credibility right now, however talented Sir Alan and his team are – which is worrying when it’s going to play a major part in shaping economic and fiscal policy.