Written evidence submitted by Professor
Matthew Flinders, Professor of Parliamentary Government &
Governance, University of Sheffield
1. The challenges in terms of the foundation,
governance and independence of the Office for Budget Responsibility
(OBR) stem from its potentially conflicting roles (ie as a form
of external watchdog and internal critical friend in terms of
forecasting). This is the "ambiguity" that Sir Alan
Budd referred to when giving evidence to the committee on the
20 July 2010. The former role necessitates a high degree of organisational
independence and a more direct relationship with Parliament and
the public. The latter, by contrast, suggests a more internalised
and quasi-autonomous role that would account to the public and
Parliament through ministers.
2. The role of this memorandum of evidence is
to highlight three inter-related issues:
(i) the currently confused and opaque system
of public administration beyond ministerial departments;
(ii) ic options for establishing the OBR and
how they relate to the central aims and ambitions of the organisation;
(iii) issue of patronage and politicisation.
ISSUE 1: DELEGATED
3. The creation of the OBR raises a number
of questions about the structure and efficiency of British government
and governance. The central objective of the OBR is to remove
any possibility of political influence from official financial
forecasts. It therefore forms part of a wider process in which
the capacity of politicians to interfere in certain policy areas
has been increasingly restricted.
4. As my book Delegated Governance and the
British State: Walking Without Order (Oxford University Press,
2009) and the more recent report from the Institute for Government
Read Before Burning: Arm's-Length Government for a New Administration
(July 2010) emphasised, the structure of the state beyond
the core (ie ministerial departments) is in dire need of fundamental
review and reform. It is nearly three decades since the last comprehensive
review of arm's-length bodies (see Cm 7797, 1980) and most ministers
have little knowledge of the raft of public bodies that they are
constitutionally responsible or what those organisations actually
5. If the government is serious about building
a more efficient, simple and streamlined statea "smarter
state"then the Treasury Select Committee's inquiry
into the future status of the OBR could play an important role
in underlining the importance and potential benefits of rationalising
the labyrinthine bureaucratic architecture that currently exists.
This would dovetail with the Government's plans to bring forward
a Public Bodies (Reform) Bill.
ISSUE 2: OPTIONS
6. The OBR's report to the Chancellor of
the Exchequer (dated 12 July 2010) resonates with this memorandum's
concern about the lack of any clear governing framework for (semi-)
independent public bodies. The document suggests (at para 61)
that there are broadly three main options in terms of organisational
status for a statutory OBRan Office/Agency of the Treasury,
an executive Non-Departmental Public Body (NDPB), or a Non-Ministerial
Department NMD). There is a fourth optionan Independent
Parliamentary Body (possibly modelled on the Electoral Commission
or Independent Parliamentary Standards Authority).
7. If a final decision is taken that the primary
role of the OBR is fiscal forecasting/internalised "critical
friend" then legislation to establish it as a NMD would be
appropriate. However, if the Government and Parliament decided
that the OBR's most important task was to operate as a form of
fiscal watchdog then foundation as a statutory parliamentary body
should be considered. The relative advantages and disadvantages
of each organisational form are set out in Table 1.
COMPARING AND CONTRASTING ORGANISATIONAL
|Staffing||Easy to arrange temporary staff transfer and secondments from other departments.
||Arguably greater flexibility (organisationally and culturally). The notion of a Treasury "mindset" is, however, fallacious.
|Accountability||Indirect: Through the Chancellor of the Exchequer to Parliament.
||Direct: The Chair of the OBR would enjoy a direct relationship with Parliament.
|Independence||Potentially restricted due to ministerial sponsorship. (The perception of ministerial control may be greater than the actual reality.)
||Constitutionally greater and arguably more legitimate in the eyes of the public. The greater distance, however, may create an unhelpful "them and us" relationship.
|Conflict||Ministers would have more internal control mechanisms but at a price of impairing the independence and credibility of the OBR. The convention of ministerial responsibility would be maintained (but arguably in an eviscerated form).
||Political tensions are bound to arise between the Government and OBR at some point. A greater degree of constitutional independence may encourage ministers to respect the views of the OBR, while also allowing the OBR to "speak truth unto power".
|Appointment||By the Chancellor with the approval of the Treasury Committee.
||By Parliament (with cross-party approval).
|LOGIC||Suited more towards semi-independent forecasting.
||Suited more towards a rigorous public-interest regulatory role.
8. The central question in terms of organisational status
(see Table 1 above) revolves around the presumption in the OBR's
own evidence that it should account to Parliament through ministers.
This standpoint may well be based upon sound professional judgments
concerning expertise, confidentiality and the transfer of documents
and information. The OBR's evidence, however, also emphasises
the need to guard against not just political interference but
also the perception of political interference and therefore a
significant and constitutionally protected zone of separation
might be viewed as appropriate.
9. An interesting parallel is provided by the Statistics
Commission. This was established in June 2000 to "help ensure
that official statistics are trustworthy and responsive to public
needs", to "give independent, reliable and relevant
advice" and by so doing to "provide an additional safeguard
on the quality and integrity" of official statistics. However
due to concerns about political interference and manipulation
the Statistics Commission was reclassified as a public body responsible
to Parliament and not to ministers from the 1 April 2008 (renamed
the UK Statistics Authority).
10. When considering the future status of the OBR it
is therefore worth askingwould the Electoral Commission,
Commission for Public Appointments, Statistics Authority or the
National Audit Office really be generally seen as "independent"
if they were funded by and accountable to ministers? Establishing
the OBR as a parliamentary body would reinforce the position and
capacity of the organisation to "own" the forecasts
it produces and to be able to account for them in public. It would
in no way preclude the temporary secondment of officials from
mainstream departmentsor external secondmentsto
the OBR. This would allow high-flying officials to develop their
professional and personal skills in a new and dynamic context.
11. Whichever organisational form is selected the future
OBR should adopt a board model. The board should consist
of no more than nine people including three non-executive directors,
the three members of the Budget Responsibility Committee (BRC),
the Chief Executive, Director of Finance and the Director of External
Relations. The non-executive directors would act as critical friends
within the organisation while also acting as external ambassadors
for the OBR. The board model would in many ways provide a valuable
buffer between the day-to-day work of the OBR and any potential
political influence. The recruitment of three non-execs would
also allow extra skills and professional competencies to be drawn-into
the OBR. It may also be of great value to ensure that at least
one member of the board is recruited from beyond the United Kingdom,
or has extensive experience of fiscal forecasting in an international
12. The line of accountability will depend on the organisational
form selected but should flow logically from the founding legislation.
This may involve the traditional convention of ministerial accountability
or could potentially involve the Electoral Commission model whereby
a member of the Speaker's Committee accounts to the House of Commons
instead of a minister.
13. Once established, the OBR should draw-up a Memorandum
of Understanding with the Treasury and other cognate departments.
This would be a flexible statement outlining the intended working
relationship and how this was designed to underpin the statutory
roles and responsibilities of the OBR. The basis of the Memorandum
would be the "no surprises rule" in which all parties
agreed to liaise regularly on a formal and informal basis to ensure
the generation and maintenance of high-trust low-cost relationships.
In order to create this relationship the memorandum should draw-upon
best practice and stipulate a series of quarterly meetings between
officials in order to ensure there is sufficient dialogue across
institutions and (through this) a co-operative relationship.
ISSUE 3: APPOINTMENTS
14. Members of the OBR should be appointed for a term
of five years and no individual should be able to serve more than
two successive terms. (Initial appointments should be made with
a view to staggering turnover.) This process for making appointments
should ensure a balance between institutional stability and fresh
15. The Chancellor has announced his intention to empower
the Treasury Committee with a statutory veto. This is a major
constitutional innovation with potentially profound consequences.
16. The role of select committees vis-a"-vis ministerial
appointments to public bodies has increased rapidly since 2000
(see Table 2).
THE LADDER OF LEGISLATIVE CONTROL OVER EXECUTIVE PATRONAGE
|Standard of Control||Standard of Control
|Step 5||Very High||Dual-Lock. Statutory power of veto over minister's candidate.
||None. Proposed for the OBR.|
|Step 4||High||Formalised Pre-Appointment Hearings AND Affirmative Legislative Vote
||Chairs of Electoral Commission, Statistics Board, IPSA, Comptroller and Auditor General.
|Step 3||Medium/High||Formalised Pre-Appointment Hearings
||Chairs of Natural England, Office of Rail Regulation, Food Standards Agency, Care Quality Commission.
|Step 2||Medium/Low||Formalised Post-Appointment Hearings
||Members of the Monetary Policy Committee, Chair of the Financial Services Authority, proposed for members of the OBR.
|Step 1||Low||Non-Statutory Confirmation Hearings
||Treasury Committee scrutiny of the Monetary Policy Committee, 1998-2007. All ministerial appointments not selected for the formal legislative review process.
17. The introduction of a statutory power of veto over
a ministerial appointment, as suggested in the Chancellor's evidence,
would therefore shift the balance of power between the executive
and Parliament significantly (ie Step 5, Table 2). The previous
government's position on the issue of select committee scrutiny
of ministerial appointments to public bodies was "more voice,
not choice". But the current Government is clearly moving
towards a system (known as "dual-locking") in relation
to the OBR. This raises at least five major issues.
18. First, if the dual-locking procedure is combined
with a Non-Ministerial Department then the potential for friction
and confusion is increased due to the manner in which a Chancellor
of the Exchequer may, at some point in the future, be held responsible
for the behavior or actions of a Chair of the OBR that was actually
their second, third or even fourth choice for the position.
19. Although (secondly) this inquiry is focused on the
OBR the Treasury Committee should be aware that the Chancellor's
decision to give the committee a statutory veto over the appointment
of Chair is very likely to stimulate demands for the same measure
to be extended to other appointments. Why would the logic that
has been applied by the Government in this case not be equally
relevant in relation to a number of other politically salient
20. Thirdly, creating the OBR is designed to depoliticise
fiscal forecasting by removing the opportunities for political
influence in the creation and dissemination of those forecasts.
Making the appointment of the Chair of the OBR subject to the
formal approval of the Treasury Committee does, however, risk
politicising fiscal forecasting from a different direction.
It would be imperative that the Treasury Committee wielded its
new powers in a sensible and proportionate manner and did not
drag candidates into party-political turf-wars. The recent experience
with the Secretary of State for Education's appointment of a new
Children's Commissioner underlines the manner in which appointment
hearings may unwittingly lead to the politicisation of both candidates
21. The role of the House of Commons (fourthly) in relation
to appointments to the OBR should be limited to the position of
Chair. Not only would this provide a very clear and focused link
between the OBR and Parliament but it would also ensure that the
two other members of the Committee were to some degree protected
from being politicised before they were even appointed. Although
it may be appropriate for the Chair to act as the political lightning-rod
it may be prudent to, as it were, `earth' the other two members
of the main OBR Committee from direct legislative contact. This
is particularly true in relation to the appointment process because
the two other appointments are highly likely to be appointed on
the basis of esoteric skills that may not be easily assessed within
the parameters of a select committee hearing. In light of this
the potential risk of deterring strong candidates from
applying due to the possibility of them having to endure a select
committee appearance may not be worth taking. Put slightly differently,
those individuals with the capacity and skills to put on a good
performance in front of a select committee may be quite different
to those required to successfully navigate the professional demands
of the OBR.
22. Finally, although the global financial crisis has
placed great pressure on public sector spending and public sector
salaries the OBR must have the resources to recruit world-class
staff. The overall staffing levels and expenditure of the OBR
are unlikely to be significant when set against the importance
of its role. The roles and responsibilities that have so far been
identified suggest that a staff of between thirty and forty people
(full-time equivalents) and an annual budget of around one to
one-and-a-half million pounds would be appropriate.
23. The OBR was established in a matter of weeks and
in a politically intense atmosphere but still managed to produce
reports of an incredible quality. The formative moments of any
institution are frequently its most traumatic and Sir Alan Budd,
Geoffrey Dicks and Graham Parker deserve great credit for what
they have achieved.
24. What level of independence from the executive does the
OBR require to function credibly? This is the primary question
that the Treasury Select Committee must grapple with during this
inquiry. When in opposition the current Government promised that
the OBR would "hold the Government to account for the promises
it makes to the British people" and for exactly this reason
this memorandum has challenged the OBR's own view that it should
be a governmental organisation (albeit with a high level
of day-to-day independence). An arguably more ambitious, appropriate
and rational blueprint for the future of the OBR would be to instill
a far higher degree of independence, and therefore public credibility,
by constituting it as a parliamentary body.
25. However, the Treasury Committee's inquiry into the
creation of the OBR must not be undertaken in isolation. On the
28 July the Minister for the Cabinet Office agreed (in principle)
to give the Public Administration Select Committee a role in approving
the creation of new arm's-length public bodies. It may therefore
be necessary for the Treasury Committee to liaise with its colleagues
on other committees before presenting the Government with a final
set of recommendations.