Office for Budget Responsibility - Treasury Contents


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; and

    (iii) issue of patronage and politicisation.

ISSUE 1: DELEGATED GOVERNANCE: WALKING WITHOUT ORDER

  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 do.

  5.  If the government is serious about building a more efficient, simple and streamlined state—a "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 FOR REFORM—A GOVERNMENTAL OR PARLIAMENTARY BODY?

  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 OBR—an Office/Agency of the Treasury, an executive Non-Departmental Public Body (NDPB), or a Non-Ministerial Department NMD). There is a fourth option—an 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.

Table 1

COMPARING AND CONTRASTING ORGANISATIONAL OPTIONS
Non-Ministerial Department Parliamentary Body
StaffingEasy 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.
AccountabilityIndirect: Through the Chancellor of the Exchequer to Parliament. Direct: The Chair of the OBR would enjoy a direct relationship with Parliament.
IndependencePotentially 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.
ConflictMinisters 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".
AppointmentBy the Chancellor with the approval of the Treasury Committee. By Parliament (with cross-party approval).
LOGICSuited 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 asking—would 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 departments—or external secondments—to 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 context.

  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 thinking.

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).

Table 2

THE LADDER OF LEGISLATIVE CONTROL OVER EXECUTIVE PATRONAGE
Standard of ControlStandard of Control ProcedureExamples
Step 5Very HighDual-Lock. Statutory power of veto over minister's candidate. None. Proposed for the OBR.
Step 4HighFormalised Pre-Appointment Hearings AND Affirmative Legislative Vote Chairs of Electoral Commission, Statistics Board, IPSA, Comptroller and Auditor General.
Step 3Medium/HighFormalised Pre-Appointment Hearings Chairs of Natural England, Office of Rail Regulation, Food Standards Agency, Care Quality Commission.
Step 2Medium/LowFormalised Post-Appointment Hearings Members of the Monetary Policy Committee, Chair of the Financial Services Authority, proposed for members of the OBR.
Step 1LowNon-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 pubic bodies?

  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 and appointments.

  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.

FINAL THOUGHTS

  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.

August 2010





 
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