Written evidence submitted by the Chancellor
of the Exchequer
You asked me to set out some more of my thinking
on the arrangements for the permanent Office for Budget Responsibility.
Before I do so, I would like, first, to put on record
my gratitude to Alan Budd, and his colleagues Geoffrey Dicks and
Graham Parker, in agreeing to lead this new venture. I believe
that the OBR marks a step change in the transparency and openness
of economic and fiscal policy making. International reaction has
been very positive. The OECD described the advent of the OBR as
"clearly an important initiative in terms of strengthening
government management of public spending and improving public
confidence in the government's fiscal policy". The IMF noted
that the OBR's proposed mandate is "broadly consistent with
established best practice for independent fiscal councils."
Sir Alan and his colleagues have been central to this innovation.
I was under no illusion at the scale of the
challenge in establishing an interim body to deliver two forecasts
in time for a June Budget just 42 days after the General Election.
Sir Alan and his colleagues met this challenge head-on and have
made an important, and I hope very long-lasting, contribution
to the development of economic policy-making in this country.
Sir Alan's own recommendations on the arrangements
for the permanent OBR mirror many of my own thoughts. The arrangements
under which the OBR currently works reflect its status as an interim
body, prior to the introduction of legislation. It is, and has
always been, my intention that the OBR should evolve from its
interim status.
The interim OBR was, of necessity, located within
the Treasury building, and staffed by redeployed Treasury officials.
Sir Alan said that at no point has there been any ministerial
interference in any of the interim OBR's work, and I am comfortable
that the OBR has been functionally independent in its interim
status. But it is important not just to be independent, but to
be clearly seen to be independent. The legislation that we will
be bringing forward shortly will allow us to take steps to meet
those perceptions. I expect that the OBR will be legislated for
in the autumn.
I will listen to the evidence put before the
Treasury Select Committee before making more detailed proposals
in the legislation, but it may be helpful for your considerations
to note my initial thinking.
THE APPOINTMENTS
TO THE
BUDGET RESPONSIBILITY
COMMITTEE
I agree with Sir Alan that Parliament will play
a prominent role in preserving the independence and accountability
of the OBR. As I told the Committee on Thursday, I intend to provide
in the legislation for the TSC to have the power of veto over
the appointment of the Chair of the OBR. A statutory veto bestows
upon the TSC more power over the appointment than they currently
have over any public appointment. I propose to take this unprecedented
step because I want there to be absolutely no doubt that the individual
leading the OBR is independent and has the support and approval
of the TSC.
An advertisement for the permanent Members of the
BRC was placed in The Economist newspaper on Friday 16 July and
is on the OBR's website, and it is expected that an appointment
will be made in September. In order to ensure that the TSC has
an effective power of veto over this appointment prior to the
enactment of the Bill, I propose that the TSC conduct a pre-appointment
hearing of the proposed candidate and I will not appoint a candidate
who is judged unsuitable by the TSC.
My intention is for the two other positions
on the Budget Responsibility Committee, currently occupied on
an interim basis by Graham Parker and Geoffrey Dicks, to be subject
to pre-commencement hearings before the TSC. This is a well established
and well understood process for other public appointments, such
as those for external members of the MPC.
REAPPOINTMENT AND
REMOVAL OF
THE CHAIR
OF THE
BRC
The Bill will set out fixed five-year terms
for the BRC members, including the Chair of the OBR. These will
be renewable once, and renewal will again be subject to the recommendation
of the Chancellor and agreement of the TSC.
I also wish to ensure that the Chair cannot be removed
at the whim of the Chancellor. The Bill will contain provisions
to the effect that the Chair may be removed by the Chancellor
only under exceptional circumstances and with the express agreement
of the TSC. These arrangements are the appropriate converse to
the appointments process outlined above, in which the Chancellor
is accountable for the appointment of the Chair of the OBR, and
the TSC has formal power of veto.
LOCATION OF
THE OBR
The interim OBR is located in the Treasury.
This was necessary given the time constraints placed upon the
production of its first forecast: the OBR began work a matter
of days after the Government was elected. While this in no way
affected the real independence of the OBR, I will ask my officials
to take forward the relocation of the permanent body outside the
Treasury. It is worth noting two points. First. changing the OBR's
physical location will not be instant. For example, it will be
necessary to provide the OBR with secure information technology
systems for holding government data. Some of the OBR's ongoing
work may therefore happen while it is still in the Treasury. Second,
given the need for close working with the Treasury around fiscal
events, there will be occasions when OBR officials may spend extended
periods of time inside the Treasury. I hope that. with the other
measures I introduce, this practical necessity will be accepted
and understood.
THE OBR'S
FORECASTS
Sir Alan made a series of recommendations about
the substance and process of producing forecasts. Discharging
this function in a transparent and independent way will remain
central to the credibility of the Government's fiscal framework.
I therefore make the following observations:
— I wish to reiterate the statement I made
when I announced the establishment of the OBR: I want us to be
one of the few advanced economies with an independent fiscal agency
that produces official fiscal and economic forecasts. In the formulation
of policy, I will retain the right to disagree with the OBR's
forecast. However, if I do so, I will have to explain my actions
to Parliament, through the TSC. This will further enhance parliamentary
accountability. I further expect that the OBR will lay its reports
directly before Parliament, and that the BRC Members will appear
before the TSC on the publication of its forecasts, as the interim
members have done this year.
— I agree with Sir Alan that a minimum two
forecasts, spread evenly over the year, represent a sensible approach
for the OBR in its steady state. It is in line with international
best practice.
— I agree with Sir Alan that steps should
be taken to enhance the technical independence of the OBR. I will
ensure that those working at the heart of the forecasting process
are clearly part of the OBR. Given the complexity and large amount
of detail upon which the fiscal forecasts depend, much of which
only exists within Government, there will continue to be close
working with the Treasury and other Government departments.
— On the process of publication, I think
it is important that the OBR follow a transparent, regular and
predictable process for the publication of information, for either
future forecasts or supplementary information on existing forecasts,
with release dates set out well in advance.
July 2010
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