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Is the OBR stuck in the middle of independence and in-house?

Chancellor George Osborne set up the OBR in 2009.

The Office for Budget Responsibility should either be made fully independent or moved into the Government, according to think tank Demoratic Audit.

Set up in 2009 by George Osborne, the OBR was originally an organ of the Conservative Party, tasked with highlighting flaws in the last Labour government’s spending. Put on a statutory footing after the 2010 election, the OBR’s chair is appointed by the Chancellor, though the Treasury select committee has a veto over the decision. The non-executive directors are directly appointed by the Treasury.

The OBR operates in conjunction with the Treasury, Department for Work and Pensions and HMRC to create its economic forecasts, a role which used to be carried out by the Treasury.

Democratic Audit managing editor Richard Berry says the OBR must either made fully independent – including responsibility for appointing the chair being handed over to the TSC – or responsibility for forecasts should be brought back within Government.

He says: “The OBR is a small organisation and it cannot have the capacity to do everything that is expected of it, so it is linked to the Treasury machine. A fully independent OBR would have to be bigger so as to handle the extra work that independence would require.

“At the moment we are stuck in the middle of independence and in-house forecasting. When the Treasury was responsible, the Chancellor could be held to account for that. As things stand the Chancellor can make the case that forecasting is independent when actually the OBR is dependent on work of Government departments and so that independence has not been fully achieved.”

Oxford Economics senior economist Andrew Goodwin dismisses the concerns as “theoretical” and says a reliance on analyses provided by experts within Government is “imperative” to the OBR’s work.

He says: “What they are getting from Government departments is what the policy is and how it will be implemented and you actually need the inside knowledge and co-operation to get that. Plus, the OBR has demonstrated it is willing to take a stand and has published forecasts which have forced the Chancellor into further spending cuts.”

When responsibility for forecasts sat with the Treasury, Chancellors were often accused of publishing numbers which suited their political intent.

Berry does not suggest the OBR has created forecasts or published other information at the request of, or in order to please, the Government. But he cites the controvesy around changes to the methodology of how the output gap is calculated, which led to accusations of political interference, as an example of why a clearer line needs to be drawn. 

He says: “These things come up and they can be interpreted as favourable to the Government and we are not sure how we hold the OBR to account for that. To say Chote alone must be held to account is not that appropriate when the reality is quite different. ”

A Memoranda of Understanding, which sets out how the OBR works with Government departments, says the OBR has a statutory right to full and timely access to all relevant Government information. However, some analyses – the impact of Government policy on public finances, for example – are provided by the Treasury to the OBR already formed. The OBR then scrutinises the analyses and says whether it agrees with them or not. The DWP provides forecasts of benefit payments.


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