A guest post by Craig Berry, arguing that, if George Osborne wants to remove the politics from economic forecasting, he has chosen a rather strange way to do it
Despite the bureaucracy-bashing election rhetoric, it only took Britain’s new Coalition government a matter of days to create its first quango.
The new Office for Budget Responsibility (OBR), announced by Chancellor George Osborne on Tuesday, will assume responsibility for growth and borrowing forecasts – key data on which the budget is based – from the Treasury.
Osborne seems to have borrowed liberally here from the Gordon Brown playbook. In 1997 Brown startled the financial world by handing the Bank of England the power to set interest rates. Similarly, Osborne has promoted his reform as another example of a minister removing his own right to interfere in decisions that should be based on independent expertise, as a signal to the markets that he is serious about tackling the deficit.
The reality is less flattering. To be precise, the OBR wasn’t created this week. It was set up in 2009 as a Conservative Party body, chaired by Sir Alan Budd. The motives behind its creation were sound. Alistair Darling’s borrowing forecast in 2008 was woefully ambitious, and there was clear justification in examining the extent to which the forecast was designed for the government’s political convenience.
But if Osborne meant to remove the politics from economic forecasting, this seems a strange way to do it.
In what may be a constitutional first, he has simply transposed a Conservative Party body into Whitehall officialdom.
Its chair – Budd has been retained, it is not surprising to hear – is a political appointee, the only difference being that he is now paid by the taxpayer rather than the party.
How much we can we expect the forecasting to improve under the OBR? Probably not very much. Treasury forecasts are usually wrong, but then so are most forecasts. With 2008 a notable exception, when Darling significantly underestimated the amount he would need to borrow, the Treasury’s forecasts are rarely less accurate than those produced by the City, think-tanks or international institutions.
The only accurate forecasts – apart from the lucky guesses – are those that present various future scenarios having factored in uncertainties, which is how the Bank of England does its own forecasting. There is no suggestion that the OBR will present forecasts in this way, or even that it has the legal power to do so.
It might even be the case that the creation of the OBR jeopardises the independence of the forecasts. Budd has been hand-picked by Osborne to run the OBR in a way that the officials who run the current in-house Treasury operation never could be.
Whatever we might say about the power of the civil service mandarins, at least those working on the forecasts previously didn’t have to worry about their jobs when they were delivering bad news to ministers. Will Sir Alan be able to say the same?
Perhaps what we are witnessing here is little more than a good, old-fashioned attempt at blame-shifting by the new Chancellor. Osborne knows the forecasts are bound to be wrong, so he might as well make it someone else’s responsibility.
He also knows that the forecasts will continue to make grim reading for some time yet, and will create demands for huge spending cuts – perhaps he’d rather have someone else to blame for that too.
Craig Berry is a senior researcher at ILC-UK and former policy advisor on older people and state pensions at HM Treasury. He has published in several leading journals, including The Political Quarterly and New Political Economy, and his book 'Globalisation and Ideology in Britain' will be published by Manchester University Press in 2010.