Appendix 2: Office for Budget Responsibility
Response
Thank you for inviting us to give evidence on our
Economic and Fiscal Outlook, as part of your broader enquiries
into Budget 2011. I am writing to respond to the Committee's recommendations
on the role of the OBR in its report of April 9. These covered
three main issues: external review of the OBR's remit and operations,
the forecast timetable and the treatment of potential privatisation
proceeds.
External review of the OBR
The report recommends that an independent, external
review of the OBR's remit and operating model be undertaken after
five years.
I very much welcome this recommendation. There will
be much to learn from our experience over this period - and from
the parallel experience of fiscal watchdogs in other countries
that have different remits and operating models. The OBR, the
Treasury and the Treasury Committee will all have questions that
we would wish such a review to cover. I hope that we can agree
appropriate terms of reference and membership to ensure that everyone's
needs can be met from a single exercise.
The forecast timetable
The report recommends that the OBR and the Treasury
revisit the Economic and fiscal outlook forecast timetable
"to provide more flexibility enabling economic shocks and
late political decisions to be incorporated".
We revisit the forecast timetable with the Treasury
ahead of each EFO, in part to take into account the timing of
economic data releases and other inputs expected in the run-up
to the Chancellor's chosen publication date. As in the case of
the March EFO, we will need to complete a final full-scale economic
and fiscal forecast iteration some days ahead of publication,
so that we can provide the Chancellor with a stable basis for
his final policy decisions. We can then prepare the final forecast
numbers (including sensitivity and scenario analysis) and accompanying
analytical material.
We do have some flexibility to adjust the final forecast
for late policy decisions and economic information emerging closer
to publication. But it is clearly in everyone's interests that,
wherever possible, policy decisions are taken in a timely way
that facilitates adequate scrutiny and incorporation in the full-scale
forecast.
Treatment of potential privatisation proceeds
The report urges the OBR "to reconsider the
way in which asset sales are treated both in the Economic and
fiscal outlook and in the forthcoming sustainability report",
as "caution in the treatment of asset sales may lead to a
bias in the central forecast".
As I wrote in my letter to you of March 23, we are
keen to examine how we can provide more detail on the impact of
potential asset sales on the public finances in the forthcoming
Fiscal sustainability report and future EFOs. But, in accordance
with the requirements of the Charter for Budget Responsibility,
we only include the impact of policy decisions such as asset sales
in our central projections when the Government has made a firm
and well-defined decision whether, when and how to sell an asset
and where the impact of that decision can be quantified "with
reasonable accuracy". The potential asset sales listed on
page 50 of the Treasury's Budget 2011 Red Book did not pass that
test at the time of our last forecast.
There is an important distinction to be made here
between the uncertainty around the nature, timing and impact of
future policy decisions and the uncertainty around many other
variables and assumptions in the forecast, especially given Parliament's
instruction to us in our legislation that we should not look at
alternative policy scenarios.
Robert Chote
Chairman
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