Can we make a difference?
Robert Chote
Chairman
Ken Dixon Lecture
University of York
13 June 2011
Can we make a difference?
“Some argue that we would have established greater credibility and
legitimacy if we had gone further in institutional reform – by getting
independent experts, if not to set the fiscal policy stance, at least to
give a public view or to date the economic cycle. I am not sure myself,
whether in practice such changes would have made any difference.”
Ed Balls, Ken Dixon Lecture, 2004
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Outline of the lecture:
– How and why have fiscal watchdogs become more numerous?
– The remit of the OBR in international context
– Demonstrating independence: governance and accountability
– Demonstrating independence: transparency
– Conclusion
The spread of fiscal watchdogs
• Countries with independent fiscal watchdogs
– Longstanding: Netherlands, Denmark, US, Belgium
– Recent: Sweden, Hungary, Canada, Slovenia, UK
– Forthcoming: Ireland, Portugal, Slovakia
• What qualifies?
– “clear fiscal watchdog function”
– “macroeconomic competence”
– “high degree of independence from the political system”
The rationale for fiscal watchdogs
• Democratic governments prone to ‘deficit bias’ and
‘pro-cyclicality’ in management of the public finances
• Possible sources of deficit bias
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Differential access to information
Impatience
Electoral competition
‘Common pool’ problems
Use for macroeconomic management
Exploiting future generations
• But does this require an official fiscal watchdog?
The remit of the OBR
• “to examine and report on the sustainability of the public
finances” (Budget Responsibility and National Audit Act)
• Four main tasks:
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Produce two five-year forecasts for economy and public finances
Judge progress towards the government’s fiscal targets
Scrutinise Treasury costing of tax and spending measures
Assess long-term sustainability and public sector balance sheet
• Other supporting material:
– Briefing papers, discussion papers etc.
– Monthly commentary on Treasury/ONS public finance statistics
Our remit in international perspective
• Advisory body rather than policymaking body
• Relatively narrow remit focused on fiscal analysis
• Macroeconomic forecasting
• Positive analysis rather than normative policy recommendations
• Focus on existing policy rather than policy options
• Official forecasts ‘contracted out’
Rights and responsibilities
• Formally set out in:
– Budget Responsibility and National Audit Act
– Charter of Budget Responsibility
– Memorandum of Understanding with HMT, HMRC and DWP
• Important features:
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Right to information and assistance from within government
Multi-year budget made public
Accountable to TSC which has appointment/dismissal veto
Need to be accountable to but independent from politicians
Non-executives can help in this relationship
Transparency
• Process:
– Substantive contacts with Chancellor and his office logged
– Forecast timetable published
– Treatment of post-deadline measures published
• Analysis:
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Diagnostics
Simpler presentation of spending forecasts
More variables and assumptions
Additional information post-publication
More methodological information
Policy costings documents
Conclusion
• We can make a difference
• All medium and long term projections need to be treated with
caution because of huge uncertainties
• But ‘contracting out’ can increase public trust
• Forecasting not the only thing that is important
• Can broaden public debate on long term fiscal challenges
• Fiscal sustainability report a challenge and an opportunity