Friday 9 July 2010

Revealed: the OBR must have an Octopus too

We may owe Nick Clegg an apology. After all, Next Left rather satirised the deputy PM's lament that the Institute of Fiscal Studies' analysis of the government's regressive budget decisions had failed to take account of future policy that the government had yet to make or announce.

After all, what type of independent forecaster would could produce more favourable results than the facts allowed, on account of positive future intentions?

Now we know the answer.

The Office of Budget Responsibility would.

So the Financial Times today explains, reporting a Chris Giles scoop, which is about rather more than a more favourable employment forecast.

As the FT Westminster blog notes, "raises doubts over its very purpose and independence ... far more significant than any speculation over Sir Alan Budd’s departure".

As Alex Barker explains:

The reasons for the revisions are even more surprising than the end result. Without telling anyone about the changes, the OBR assumed that George Osborne would:

1) Cut state contributions for public sector pensions (an assumption that pre-empts the conclusions of John Hutton’s pension commission)

2) Put the brakes on promotions in the public sector (even though the chancellor has never announced such a policy)

There are three possible explanations: the independent OBR is taking orders from the chancellor; practising economic telepathy; or inserting random policy into its forecasts.

Meanwhile actual coalition policy announcements that would lower long term growth under the original OBR model — such a limiting net-migration to 1990s levels — were excluded. Hmm.

Is the FT right to be suspicious? Or might the explanation be that the OBR has simply been taking advice from a psychic German Octopus on a consultancy basis?


A further authoritative intervention arguing that "drastic change" is needed if the OBR is to establish its independence and credibility is set out by Doug McWilliams, chief executive of the Centre for Economic and Business Research, who was influential in shaping the OBR's purpose and remit.

As The Guardian reports:

McWilliams said the OBR was a good idea, but in order to be effective needed to be led by someone appointed by the Treasury select committee rather than the chancellor, be staffed by officials who had not worked at the Treasury, base its work on the consensus forecasts from 40 UK forecasting groups, and have its own offices outside the Treasury.

Next Left was first out of the blocks following Budd's departure in advocating that the Treasury Select Committee, rather than the Chancellor should appoint the OBR's Chair. That proposal was echoed by the New Statesman in its editorial this week.

Peter Hoskin of the Spectator agrees.

The CEBR and Financial Times interventions signal growing pressure from expert economic opinion of the need for the OBR to change substantially after its initial birthing pains if it is to credibly stake a claim for independence.

Accountability to Parliament is therefore emerging as the key test necessary to command a consensus among expert opinion and across the political spectrum that the point of establishing the OBR - credible independence - can be met.

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