The OBR has a vital role to play in ensuring fiscal honesty in the years aheadby Paul Wallace / December 20, 2019 / Leave a comment
As parliament awaited the Queen’s Speech on Thursday, a more modest event got under way nearby in Westminster. The Office for Budget Responsibility (OBR) presented two reports, one on its forecasting record since 2016, the other on recent welfare trends. With pomp and ceremony on display elsewhere, the presentation attracted little attention but the fiscal watchdog will be centre-stage early next year, when Chancellor Sajid Javid presents his first budget. The OBR’s job will be to spell out in sober forecasts what Boris Johnson’s rhetoric and Javid’s decisions really mean for the public finances.
The OBR’s prominence demonstrates the importance of institutional reforms. Freeing the Bank of England to set monetary policy in order to meet the government’s inflation target was a masterstroke of Gordon Brown when he became chancellor in 1997. Having an independent central bank made it easier to adopt unorthodox measures such as quantitative easing to support the economy after the financial crisis of 2008 and helped steady the ship during the economic and financial turbulence that followed the Brexit vote in 2016. Today’s announcement that Andrew Bailey, currently head of the Financial Conduct Authority, will replace Mark Carney as governor when he steps down in mid-March puts another safe pair of hands at the Bank’s helm.
The OBR is a more recent innovation, but it has already proved the value of an independent public institution in the fiscal realm since 2010, when George Osborne established it on becoming chancellor. Budgetary policy rightly remains the preserve of the Treasury but the OBR is charged with examining and reporting on the sustainability of the public finances. It conducts the economic and fiscal forecasts that frame the chancellor’s decisions. And it assesses how the public finances are performing with respect to the Treasury’s fiscal targets.
One virtue of stripping forecasting away from the Treasury is that the OBR can be open about its record in a way that departments answering to ministers cannot be. Indeed, the act setting up the watchdog obliges it to evaluate its forecasts. On Thursday the OBR revealed how the ones it made in 2016, ahead of the referendum vote in June and after it, compared with actual outcomes since then. The spring forecast, which assumed that Britain would stay in…