Independent scrutiny of the public finances is now an accepted feature of the political landscape. Civil Service Quarterly asked Robert Chote, Chair of the Office for Budget Responsibility (OBR), about the role of the OBR and the challenges it faces.
Can you explain what the Office for Budget Responsibility (OBR) does and why it was established?
The OBR was created by the Coalition Government in 2010, with cross-party support.
Our overarching role is to provide independent and authoritative analysis of the public finances, free of politically motivated doom-mongering or (more often) wishful thinking.
Specifically, we produce five-year forecasts for the public finances and the economy alongside each Budget and Autumn Statement; and we use these to judge the Government’s progress against its fiscal targets. We scrutinise the costing of individual policy measures; and we assess the long-term sustainability and riskiness of the public finances.
Is the OBR unique to the UK?
No, we are one of around 40 independent-but-official fiscal institutions around the world. We all share the same motivating spirit, but differ in our precise roles and structures.
The OBR is unusual in a couple of respects. First, the Government has fully ‘outsourced’ the official public finance forecast to us, rather than asking us to scrutinise or second-guess its own numbers. Second, Parliament confines our analysis to the current policy of the current government. We cannot assess policy options or – like our Dutch counterparts, for example – scrutinise party manifestos.
Can the OBR make policy recommendations?
No. We cannot even say whether a policy we have examined is a good idea or not, tempting though that can be.
How important is the OBR’s independence?
It’s crucial, both in substance and appearance. The legislative underpinnings are essential: our freedom to set our work programme, our right to information from government, the openness of our funding, the way we are appointed, and so on. And, although our staff are civil servants, they are responsible to me and do not take orders from departmental ministers, advisers or other civil servants.
But, beyond these formalities, the main way we demonstrate our independence is through transparency – in the way we work and the analysis we publish. People are bound to disagree with some of the conclusions we reach, so it is important that we ‘show our working’ to demonstrate that it reflects professional judgement rather than political axe-grinding. In practice, I am pleased to say that ministers have never tried to put pressure on us – either directly or indirectly – even when we have told them that they are on course to miss their targets or when we have revealed some of the more imaginative ways in which they have remained on course to hit them.
But transparency is also valuable in its own right: we publish far more information about the public finances than the Treasury used to.
Has that independence paid dividends in terms of the accuracy of the OBR’s forecasts?
Our forecast errors are smaller on average than those in official forecasts over the previous 20 years, although we have not yet had a recession on our watch (when errors tend to be bigger). The IMF also said last year that “while it is still relatively early in its track record, the OBR’s forecasting record indicates a lower degree of bias than under the Treasury forecasting regime.” But this is not a ‘spot-the-ball’ competition. We always emphasise the uncertainty around our forecasts, and in July we published our first dedicated report on fiscal risks. No sensible government would set policy on the assumption that a particular forecast will come true. Policy has to be robust to a range of possible outcomes.
How many people work at the OBR? How many are civil servants and what does that mean for the way the OBR works?
The three members of the Budget Responsibility Committee – appointed by the Chancellor subject to a Treasury Select Committee veto – have ultimate responsibility for the OBR’s judgements, but we have a staff of 27 civil servants to help us. Different teams work in areas such as macroeconomics, public spending, tax, welfare, long-term and risk analysis, and policy costings. We advertise vacancies externally when we can, and sometimes take graduate entrants, but in practice we draw heavily on the pool of civil servants with relevant expertise in places like the Treasury, HMRC and DWP.
When I arrived at the OBR from the Institute for Fiscal Studies, I worried that I would have to impose a culture of independence from the top as most of our staff would come from and/or expect to go back to government departments. But that was to underestimate their professionalism and to misunderstand human nature – they are perfectly happy to prod their former colleagues with a stick when necessary.
We are too small to offer people a career structure for life, but it is very important to me that people see the OBR as a fun and rewarding place to work and that their time with us will enhance their future career opportunities. As a small, flexible team with a clear mission and a strong esprit de corps, we have very high staff engagement scores and we attract great people.
What are the main challenges the OBR has faced since it was established in 2010?
My main goal on joining the OBR was to cement it in place as a trusted and permanent part of the UK’s economic policy infrastructure, putting transparency and the recognition of uncertainty front and centre. Stakeholder surveys, external reviews and cross-party support have all been encouraging in that regard, but we can never be complacent.
Economic forecasting is always a challenge, of course, and the main puzzle that we and others have had to grapple with has been the remarkably weak performance of productivity and what that might imply for future growth prospects – a challenge that the uncertain outcome and impact of Brexit will only add to.
In fiscal forecasting, the challenges have included assessing the impact of changing work patterns, income distribution, tastes and technology, and ensuring that we are clear-sighted and hard-headed when scrutinising government welfare and tax ‘reforms’. One challenge I would not have predicted at the outset was the scale and speed of devolution, which is creating new and interesting analytical work for us and requiring wider stakeholder engagement.
How does your early career as a journalist compare to your work at the OBR? Did it prepare you in any particular way for your OBR role?
Not so long ago, the editor of The Spectator said I was still ‘a hack at heart’, which – for him at least – was a compliment. But fundamentally I do feel as though I am trying to do the same job now that I was at The Independent and the Financial Times – namely to be a decent reporter.
At the end of the day we are trying to make sense of what is going on in the public finances, to explain it as best we can to the public, and in particular to shine light on those areas that governments might prefer to keep in the shade. Hopefully that contributes to better policy and a better-informed public debate, although I am frustrated that Parliament does not make more effective use of our work in holding the Government to account – why do they have an Opposition response and debate on the Budget as soon as the Chancellor sits down rather than giving everyone time to read the detail of the forecasts and policy measures first?
I am certainly glad that I was a consumer of economic and fiscal forecasts and analysis before I was a producer – I think it helps you approach the task in the right spirit!