Summary
The Chancellor of the Exchequer has taken a bold
step in giving responsibility for drawing up the Government's
budget forecast to an independent body, the Office for Budget
Responsibility. The permanent arrangements for the Office are
to be made in primary legislation later this year.
For the OBR to succeed, it will have to be, and be
seen to be, independent. There are obvious challenges in ensuring
the independence of a body which will produce the forecasts which
the Government uses in its budget, and which will have to draw
on government resources in its forecasting role.
As a minimum we recommend that the legislation should
include:
| a) | establishment of the OBR as an institution with its own legal personality, responsible for appointing its own staff;
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| b) | a requirement on the OBR to act transparently, objectively, and independently;
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| c) | a clear remit and set of core tasks;
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| d) | a requirement that the responsible select committee should have a veto over appointment or dismissal of the Chair of the permanent body and the members of the Budget Responsibility Committee;
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| e) | provision for a small group of non-executive directors to support the Budget Responsibility Committee;
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| f) | a requirement that government officials support the OBR when it is preparing forecasts;
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| g) | a requirement that the OBR has a right of access to the information it needs.
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The legislation establishing the OBR should not require future
governments to use OBR forecasts. It is possible that the power
of the Government to use its own forecasts will counterbalance
any incentive the OBR might have to be overly pessimistic. The
OBR's reputation would suffer if it were shown that its forecasts
were so significantly biased that the Government no longer considered
them a reasonable base for policy-making. However, it would be
a major step for Government to do this. Once the decision had
been made, the OBR's credibility would be severely, and possibly
terminally, damaged.
A great deal will depend on matters which cannot be provided for
directly in statute, in particular the calibre of the members
of the Budgetary Responsibility Committee and of the non-executive
directors.
Our role in ensuring the independence of the organisation
goes beyond our veto powers. Whether or not the OBR is established
as a Parliamentary body, it is vital that it commands confidence
across party boundaries. We will take evidence from the organisation
regularly as part of the budget process. We will intervene if
we believe the OBR's independence is threatened. We expect the
members of the Budget Responsibility Committee or the non-executive
directors to report any concerns they have to us.
If it is to be successful, the OBR will provide clear,
impartial forecasts and commentary which improve public debate.
It will avoid being drawn into political controversy, even though
the material it provides will inevitably be used by others in
political debate.
The OBR's work should lead to greater public understanding
of the purpose and limitations of the forecasting process, and
realistic expectations of what it can deliver. The quality and
authority of OBR forecasts can be measured over time, relative
to other forecasts. Absolute accuracy is not a useful criterion.
Given the lack of institutional experience of bodies
such as the OBR, and the range of views on the matter, we consider
that the arrangements adopted for the permanent OBR should be
subject to comprehensive review no later than five years after
it is established by statute. This should include an assessment
of the OBR's performance, remit and institutional accountability
arrangements. In particular, we believe that the review should
consider in the light of experience the case for the OBR becoming
a Parliamentary body with its resources determined by a House
of Commons body, such as the Public Accounts Commission.
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