Ben Ramanauskas has worked in academia and as an adviser to the government. He is currently writing a book on the UK economy.
Rachel Reeves, in perhaps one of her last acts as Chancellor, has nominated Jonathan Haskel to be head of the OBR. A professor at Imperial Business School, former MPC member, and co-author of the excellent Capitalism Without Capital, he is a fantastic choice for the job.
However, he will have his work cut out. Not just because scrutinising the public finances is a tough job, but because the OBR itself has recently come under a lot of scrutiny. While some of the criticism of the organisation is justified, most of it is unfair.
First, we need to remember why the OBR was set up in the first place. During the New Labour years, HM Treasury’s forecasts were carried out in house. Although the officials tried their best to be accurate and impartial, this was surely easier said than done with Gordon Brown looming over their shoulder. Brown and then Alistair Darling were essentially allowed to mark their own homework. As a result, the forecasts were far too optimistic, their fiscal policies brought in far less revenue than expected, and so borrowing was higher than expected.
Second, it does what its architect George Osborne intended. Namely, it acts as a restraint on profligate politicians. A Chancellor can no longer go on a spending splurge without setting out how they’re going to fund it. Those on the centre-right should welcome this enforcement of fiscal conservatism. Moreover, it ensures that considerations around the National Debt are kept at the forefront of the government’s – and the public’s – minds.
The country already spends over £100bn each year servicing the National Debt, which is higher than the budgets for other departments including defence, education, and the criminal justice system. This is unsustainable and our politicians need to remember it.
Third, it gives credibility to the government’s plans. One of the reasons why the Truss and Kwarteng ‘mini-budget’ was such a disaster was because they decided to do it without involving the OBR. The markets felt that they had something to hide or that their plans were simply not credible. If they had taken their time to actually explain their plans to the OBR and with a bit of push back from both sides, a credible plan could have been produced. They didn’t do this, the markets were spooked, and what could have been a great premiership came crashing down a few weeks later.
Finally, the OBR does a pretty good job. Forecasting is tough and it has to rely on sometimes dodgy data from the ONS and promises by politicians. Despite all of this, the OBR is relatively accurate in its forecasts. The fact that the markets were so startled by it being sidelined speaks to its reputation as an accurate forecaster. It is also respected by international organisations such as the OECD and the IMF for its impartiality and accuracy.
However, the OBR is not without its issues. For example, it could improve its accuracy. In part this will involve working with the ONS to improve the data it receives to make its forecasts. This should be treated as a matter of urgency given the importance of data for pretty much every political department and the policies they develop.
Relatedly, it will have to look at improving how it measures things such as public sector productivity. This will be a difficult task, but is a reason why Haskel is a good choice as his research has focused heavily on this.
Moreover, Truss was probably right when she has criticised the OBR for not considering the dynamic effects of tax and regulatory changes. Rather than just assuming that a tax increase will lead to higher revenue or that a cutting of red tape will have limited impact, it should consider that this might not be the case and so adjust their forecasts accordingly. It probably won’t do this off its own bat so it will need to be directed to by the government.
Finally, the OBR needs to be able to push back publicly. Before every fiscal event, Treasury mandarins and SpADs look OBR officials straight in the eye and swear that the Chancellor will definitely unfreeze Fuel Duty. This is a charade as everybody involved knows this is simply not true. Nevertheless, the officials put this into their forecast and then down the line, when the inevitable happens and Fuel Duty remains frozen, the Treasury receives far less revenue than anticipated. The forecast was wrong and so the government has to borrow more than expected. This is no way to run the public finances of a G7 economy.
Rather than disparaging the OBR, Conservatives should be pleased that we have a well-respected body which enforces some fiscal discipline on our otherwise profligate politicians.
Ben Ramanauskas has worked in academia and as an adviser to the government. He is currently writing a book on the UK economy.
Rachel Reeves, in perhaps one of her last acts as Chancellor, has nominated Jonathan Haskel to be head of the OBR. A professor at Imperial Business School, former MPC member, and co-author of the excellent Capitalism Without Capital, he is a fantastic choice for the job.
However, he will have his work cut out. Not just because scrutinising the public finances is a tough job, but because the OBR itself has recently come under a lot of scrutiny. While some of the criticism of the organisation is justified, most of it is unfair.
First, we need to remember why the OBR was set up in the first place. During the New Labour years, HM Treasury’s forecasts were carried out in house. Although the officials tried their best to be accurate and impartial, this was surely easier said than done with Gordon Brown looming over their shoulder. Brown and then Alistair Darling were essentially allowed to mark their own homework. As a result, the forecasts were far too optimistic, their fiscal policies brought in far less revenue than expected, and so borrowing was higher than expected.
Second, it does what its architect George Osborne intended. Namely, it acts as a restraint on profligate politicians. A Chancellor can no longer go on a spending splurge without setting out how they’re going to fund it. Those on the centre-right should welcome this enforcement of fiscal conservatism. Moreover, it ensures that considerations around the National Debt are kept at the forefront of the government’s – and the public’s – minds.
The country already spends over £100bn each year servicing the National Debt, which is higher than the budgets for other departments including defence, education, and the criminal justice system. This is unsustainable and our politicians need to remember it.
Third, it gives credibility to the government’s plans. One of the reasons why the Truss and Kwarteng ‘mini-budget’ was such a disaster was because they decided to do it without involving the OBR. The markets felt that they had something to hide or that their plans were simply not credible. If they had taken their time to actually explain their plans to the OBR and with a bit of push back from both sides, a credible plan could have been produced. They didn’t do this, the markets were spooked, and what could have been a great premiership came crashing down a few weeks later.
Finally, the OBR does a pretty good job. Forecasting is tough and it has to rely on sometimes dodgy data from the ONS and promises by politicians. Despite all of this, the OBR is relatively accurate in its forecasts. The fact that the markets were so startled by it being sidelined speaks to its reputation as an accurate forecaster. It is also respected by international organisations such as the OECD and the IMF for its impartiality and accuracy.
However, the OBR is not without its issues. For example, it could improve its accuracy. In part this will involve working with the ONS to improve the data it receives to make its forecasts. This should be treated as a matter of urgency given the importance of data for pretty much every political department and the policies they develop.
Relatedly, it will have to look at improving how it measures things such as public sector productivity. This will be a difficult task, but is a reason why Haskel is a good choice as his research has focused heavily on this.
Moreover, Truss was probably right when she has criticised the OBR for not considering the dynamic effects of tax and regulatory changes. Rather than just assuming that a tax increase will lead to higher revenue or that a cutting of red tape will have limited impact, it should consider that this might not be the case and so adjust their forecasts accordingly. It probably won’t do this off its own bat so it will need to be directed to by the government.
Finally, the OBR needs to be able to push back publicly. Before every fiscal event, Treasury mandarins and SpADs look OBR officials straight in the eye and swear that the Chancellor will definitely unfreeze Fuel Duty. This is a charade as everybody involved knows this is simply not true. Nevertheless, the officials put this into their forecast and then down the line, when the inevitable happens and Fuel Duty remains frozen, the Treasury receives far less revenue than anticipated. The forecast was wrong and so the government has to borrow more than expected. This is no way to run the public finances of a G7 economy.
Rather than disparaging the OBR, Conservatives should be pleased that we have a well-respected body which enforces some fiscal discipline on our otherwise profligate politicians.