5 Conclusion
Legislative framework
120. The
Treasury's task is now to prepare the legislation setting up the
permanent OBR. As a minimum we recommend that 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;
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| e) | provision for a small independent group to support the BRC;
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| f) | a requirement that Government officials support the OBR when it is preparing forecasts and that they have a duty to give the OBR full and objective advice;
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| g) | a requirement that the OBR has a right of access to the information it needs;
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| h) | a requirement for a review of the organisation five years after it is established.
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We have not set out in detail how
these might be accomplished.
121. In
preparing this Report we have become aware of some anomalies in
the current legislative framework relating to fiscal forecasting.
The framework for government economic decision-making is still
governed by the Code for Fiscal Responsibility, any revision of
which requires approval by the House of Commons. The Code should
have been revised as a consequence of the Fiscal Responsibility
Act 2010, but although the necessary Order was laid, no steps
were taken to approve it. The Code for Fiscal Responsibility requires
a Pre-Budget Report, a Budget Report (containing an economic and
fiscal projection) and other fiscal reports to be published by
the Treasury. The Treasury should bring forward a revised Code
for approval to ensure the OBR has control of the publication
of its forecasts. It should also, if necessary, reflect changes
in primary legislation and any changes to the way Government proposes
to make its fiscal reports to Parliament.
Non statutory measures
122. While the statutory measures set out above will
provide a framework within which the OBR can operate independently,
its independence will also depend on the way in which it is perceived.
The Budget Responsibility Committee has a difficult task. There
are fiscal councils, such as the CBO in the US and the Parliamentary
Budget Office in Canada which are clearly Parliamentary in remit,
and which do not produce forecasts for the government, but produce
independent forecasts and analysis for Parliamentary use. There
are also councils such as the Swedish Fiscal Policy Council, which
produce their own analysis, and review government forecasts and
the models used to produce them. To avoid any perception of bias,
staff of the Hungarian Fiscal Council cannot move between the
Fiscal Council and the Treasury or National Bank on secondment.
Such councils are clearly independent, but do not necessarily
and directly increase confidence in the Government data.
123. There are organisations which produce forecasts
for Government. However, we note that the CPB, the Netherlands
Bureau for Economic Policy Analysis, has a staff of over 170.
The Belgian Federal Planning Bureau has a staff of about 100.
There must be a risk that the relatively small size of the OBR
and its close involvement in producing material for government
means that it will not be seen as independent. We hope the difficulties
are not insuperable. The CPB is "independent with respect
to content, but at the same time CPB is formally part of the central
government." It has existed since 1947. If
the OBR is to be credible, members of the Budget Responsibility
Committee will need not only to be independent but to demonstrate
that independence from the Government's own Treasury team.
124. Forecasts can become embroiled in party political
controversy. The use made of the OBR's employment figures earlier
this year, when, in response to a leak of an internal Treasury
document, the OBR brought forward the release of its own employment
projections, is an illustration. It is unfortunate that the OBR's
figures were released shortly before Prime Minister's Questions.
The OBR has now agreed a standard time to release its documents,
but there are wider lessons. Although
the forecasts will be produced by a nonpartisan body, the future
path of the economy is the subject of intense political debate.
The OBR's forecasts will inevitably be used in that debate. To
preserve its reputation for political impartiality, it is essential
that the OBR takes all reasonable steps in the presentation of
its words to inhibit them from being misused or misrepresented.
The Committee's role
125. The
current proposals for the OBR envisage that this Committee will
have a role in controlling both the appointment and the dismissal
of the Chair of the OBR. Our role in ensuring the independence
of the organisation goes beyond that. 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. Only if it is independent will the OBR be successful.
Success criteria
126. It will be useful if we put forward some criteria
for judging the success of the OBR.
The most important sign of the OBR's success will be that it establishes
and retains a reputation for independence and impartiality. While
its forecasts and publications should improve political debate,
the organisation itself will be under pressure to be drawn into
partisan disputes.
127. There are other criteria for success, which
should also increase the perception of the OBR's independence.
Although the criteria may develop further over time, these may
help the permanent OBR in its early decisions and will also be
relevant to the 5 year review of the OBR's performance, remit
and institutional accountability arrangements which we have recommended
earlier. Almost all of the criteria have been met by the work
of the interim OBR.[108]
128. Absolute accuracy of short-term forecasts should
not be among the criteria, as forecasts are inherently fallible
whether or not they are, in the Chancellor`s words, "fiddled".
The OBR should not slip into believing, or encouraging others
to believe, that it has some unique access to reliable knowledge
of the future. But an important
criterion is that the OBR should seek to avoid significant bias
over time in its forecasts, its assessment of trend growth, or
its judgements about the probability of the government's mandate
being met on the policies announced.
129. The work
of the OBR needs to achieve and retain a high professional standing
through objectivity and transparency and by testing the models
it uses and its analysis, including work on the long term balance
sheet, with outside economists. The OBR should not seek extra
resources, either to extend its economic analysis or to get new
data, beyond the point at which the benefits can be clearly seen
to justify the costs.
130. The OBR's
reports should be comprehensible to non-experts, like the output
of the interim OBR, and suitable for use in public debate. Its
work should improve the quality of that debate. But the OBR should
not itself run education campaigns.
131. The OBR should give priority to the remit specified
in the legislation. It should have sole discretion in deciding
whether to undertake other work proposed by others.
132. There are
significant risks facing any new organisation. The approach put
forward by the interim BRC avoids the risk that the forecaster
will lack information available to Government, or that there will
be wholesale duplication of resources. It does, however, increase
the risk that the OBR will not be seen as independent, and this
could undermine the potential gain from this reform: increased
trust in the forecasts used in government policy making. We will
scrutinise this carefully.
108 The exception is control over the dissemination
of its forecasts; we presume the OBR forecast appeared with the
Budget itself because of the current requirement for the Treasury
to publish forecasts. Back
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