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6 January 2015
A version of this post originally appeared at TVHE
Yesterday saw a debate over whether the Office for Budget Responsibility should cost Opposition policies, as has been suggested by the Shadow Chancellor, Ed Balls. Sajid Javid appeared on the BBC to defend the Government’s decision not to allow it. He avoided criticising the idea but pushed the Government’s line that now is not the right time to extend the OBR’s mandate. On the other side of the debate, Simon Wren-Lewis criticises the Government for delaying.
Reform supports extending the OBR’s responsibilities but there are good reasons for the Government to demur. Overseas experience shows that giving fiscal councils too much responsibility too soon can jeopardise their existence. The major risks to a young fiscal council, such as the OBR, tend to be changes in the ruling party and changes in the council’s leadership. The Hungarian council, for example, was established by one Government then swiftly neutered by the next when it was critical of the new Government’s plans.
The OBR faces the possibility of changes in the ruling party as early as May, and its charismatic Chairman, Robert Chote, will then have been in the role for nearly five years. Thankfully, the Labour party’s shadow Chancellor, Ed Balls, has been a strong supporter of the OBR in the past Parliament. Nonetheless, the organisation will need to work hard over the coming year to maintain the credibility that it has established, particularly if Chote departs.
That alone might be enough to postpone changes in the mandate until next year but the risks are multiplied by the massive expansion of the OBR that would be required if it were to assess Opposition plans. Civil servants do not advise the Opposition but they are heavily utilised by the OBR in preparing its reports. For the preparation of its reports the OBR uses an equivalent of 125 full-time staff each year and directly employs only 6 of them. The remainder are drawn largely from HMRC and DWP, with a few from HM Treasury. The Dutch CPB, which costs Opposition policies, employs about that many itself and the American CBO employs closer to 250 staff. For the OBR to cost Opposition policy it might need to grow to around ten times the current size. That expansion would seriously challenge its culture and quality; not ideal prior to a general election where its work is being scrutinised with ever greater interest by economists, journalists and politicians alike.
Together, those factors led an independent review of the OBR to recommend that
“…caution be exercised in considering the expansion of the OBR’s mandate (e.g. costing certification of opposition manifestos). The OBR may not have the organisational capacity to expand its remit without further drawing on the resources of other government departments. In addition, the particularly narrow legal framework of the OBR and its interdependencies with the executive branch may risk creating perceptions of conflicts-of-interest.”
An expanded role for the OBR is a very good idea in principle, but the institution needs to endure beyond one Parliament and one leader before it is ready to tackle such an enormous and politically sensitive task.
James Zuccollo is Senior Economist at Reform