In defence of the OBR

The Treasury Select Committee were grilling the Office for Budget Responsibility last week. Rudely, by the sounds of it. Asa Bennett quoted this from OBR boss Robert Chote:

With impressive speed, Simon Heath drew this:

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The OBR comes in for a lot of criticism but some of it is unreasonable. It always makes makes it clear that its forecasts could change and that any number of factors could throw them way off. It’s true that some of its projections have been way wide of the mark but we live in wide of the mark times. The economic donkey veered off in a direction no-one had anticipated in 2008 and its been staggering around erratically ever since. Often, the people who are paid to understand this stuff, whether at the Bank of England, the Treasury or any number of think tanks, seem to have not much more clue than the rest of us. Danny Blanchflower commented recently that labour economics isn’t as simple as it used to be. The same goes for every other aspect of economics and finance.

Whatever else you might say about the OBR, though, it does put a lot of data into the public domain in an accessible format and provides commentary and forecasts that at least give us a starting point for discussion. Credit where it’s due to George Osborne for setting the OBR up in the first place, though I wonder if he’s beginning to regret it now. At the Resolution Foundation’s Parliament of Pain event last month, Gavin Kelly was reminiscing about the political debates about the deficit we had before the last election. As he reminded us, we spent inordinate amounts of time talking about how much the deficit could be reduced by cutting back office services in public sector organisations. I remember it well. By cutting lots of bureaucrats we could save….oh, loads. Those wretched Finance, HR and IT people would bear the brunt of deficit reduction.

Politicians could only get away with this (and all parties were at it) because there wasn’t much publicly available information on government finances and what little there was took some finding and de-coding. I was reminded of how much things had changed when the OBR published its Crisis and consolidation in the public finances report. For the first time, a lot of the data from 2008 was made public, making what happened during the financial crisis much clearer. This is the sort of information we take for granted now but which wasn’t easily accessible eight years ago. The Coalition deserves some credit for having made so much more information available, even if it does make the absurdity of their plans that much more obvious.

The OBR comes in for criticism, especially from the left, for not commenting on the achievability of the government’s fiscal plans, or for some of the implications, like the probability of the NHS running out of money even with ring-fenced budgets. But that’s not what the OBR is there for. It’s remit is narrow. Rightly. Its job is to look at the government’s spending plans and explain what the fiscal implications are. Whether or not these plans are achievable is outside its brief. In its recent paper, it remarked that cuts of the size planned by the government would probably have an impact on GDP. That’s about as far as it can go. The interpretation of these figures, the economic effects and the impact on public services are for others to judge.

Thanks to the OBR, it’s now much more difficult for politicians to fluff round questions about the economy and public finances, although a lot of them don’t seem to have realised it yet. That should mean that the next election is fought in more light. Any new government trying the “Now we’ve had chance to look at the books, it’s much worse than we thought” line will be ridiculed. We’ve seen inside the books and we know a lot more about what’s going on.

As Matthew Whitaker and Paul Johnson both said last week, when the Autumn Statement came out, a lot of people weren’t really interested in what the Chancellor had to say, they were waiting for the OBR to dish the dirt on the public finances. Which it did. That shows how far the OBR is now part of the political landscape. We’re all the better for it.

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6 Responses to In defence of the OBR

  1. David says:

    just trying to recall who introduced it….and why .

  2. John says:

    On the question of the 2010 general election, I am surprised you seem to be experiencing a loss of memory, Rick.
    Prior to it, Alistair Darling tried to warn us all that we were potentially facing an era of austerity which had not been seen since the 1930s. He actually did say that !!
    His reward was to be told to shut up and to keep quiet on the subject of economic policy.
    Where the mass media failed was in failing to pick up on what he had said and then grilling the political parties’ leaders mercilessly on the topic, thus forcing them to come clean on the scale of public service cuts each of them would implement after 2010.
    Regrettably, the media – once again – are failing to keep the politicians honest by their repeated failure to hold politicians to account for their real policies over the next 5 years.
    Yes – it should be other politicians who expose the paucity of another party’s policies but when they all fail to address the topic, where are our media commentators?
    Yet again, we are all being failed by the whole system. That’s a fact,

  3. David says:

    I’m sure I recall that . I also recall the common feeling that both parties seemed to have more or less the same solutions for the economy , the only difference being the cause , which at the time , seemed unimportant . It feels like nothing’s changed with both aping each other at every twist and turn and still reluctant to ‘lay it on the line’ .
    So stand by for more “jam tomorrow” !

  4. SK says:

    The problem lies with the way debates are done.
    The best solution is to put them in front of a computer screen and ask them to apply their party choices.
    Yes the economy cannot be simulated but on basis of the OBR data we can push these guys to show us what decisions they will make and not have to read the disclaimer notes in order to understand their real policies.

  5. Craig Ryan says:

    Another great post, mostly agree, but I have a problem with this bit:

    “In its recent paper, it remarked that cuts of the size planned by the government would probably have an impact on GDP. That’s about as far as it can go. The interpretation of these figures, the economic effects and the impact on public services are for others to judge.”

    That’s not good enough. If the cuts will have an effect on GDP they will have an effect on the deficit (through lower tax receipts and higher social spending). If the OBR is not prepared to quantify that effect, whilst admitting that it exists, it cannot be giving an honest assessment of the fiscal implications of government policy.

    And if the OBR is using one of those fantasy models which pretend that spending cuts have no effect on GDP, why make the statement in the first place? Either the OBR is hiding something or it doesn’t have confidence in its own model.

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