How does the Office for Budget Responsibility work?

In the last week there has been increasing disquiet about the OBR (Office for Budget Responsibility) not being allowed to publish its forecasts based on the new government’s economic plan.

With this in mind, we thought it would be useful to take a look at what the OBR is, why it was formed and what role it plays in UK economic life.

The OBR was formally established by the Budget Responsibility and National Audit Act 2011

A new feature in public life

In 2010 a new Conservative-Liberal Democrat coalition government was formed. Many voted for these parties because they believed the Labour government under Gordon Brown had mismanaged the economy. Eager to showcase their commitment to ‘fiscal responsibility’ the new coalition established (on a statutory footing) a new non-governmental public body the Office for Budget Responsibility.

The idea was a simple one, to have a body free from government control that could provide impartial analysis and evaluation of public finances and therefore in effect government policy. There was a belief within the coalition parties that the previous government had not been honest with the public in the preceding years in relation to public finances. That they had left the country vulnerable and therefore disproportionately affected by the global financial crisis.

The OBR’s mission statement is simply:

“It is the duty of the Office to examine and report on the sustainability of the public finances”

Independent Financial Watchdogs like the OBR have been popping up across the West in recent years, many in response to both the 2008 financial crisis and the 2011 Eurozone crisis. They can be found across Europe as well as in the USA, Canada and South Korea.

How does it work?

Like all ‘financial watchdogs’ the OBR is staffed by supposedly impartial experts who, free from bias or political need, can provide the most effective advice and analysis. The OBR’s first chairman for example was Sir Alan Peter Budd, a renowned economist with a PHD from the University of Cambridge.

The OBR’s current staff come from the Bank of England, the Institute for Fiscal Studies, the Civil Service and academia.

Their location being based in a separate building a few streets away from the Treasury in Whitehall emphasises their supposed separation and independence from the Government.

The main role of the OBR is to publish reports and analysis. They list their 5 key roles as following:

1. Economic and fiscal forecasting

2. Evaluating performance against [government] targets

3. Sustainability and balance sheet analysis

4. Evaluation of fiscal risks

5. Scrutinising tax and welfare policy costing

OBR reports are regularly referenced in Parliament by both the Government and the Opposition as well as being a regular feature in media stories. OBR reports regularly critique policy and therefore cannot be dismissed out of hand as being an additional government mouthpiece.

OBR reports are regularly featured in the media
The OBR is criticised by some for having a ideologically biased viewpoint

Two main criticisms of the OBR

When analysing the OBR, there are usually two main criticisms. The first is based on economic theory and the second on the leverage the government has over them.

Many have challenged the OBR on the basis that their ‘impartiality’ is still grounded in neo-liberal economic theory. All their staff subscribe to the current economic orthodoxy and therefore they are evaluating economic performance against what many would say are an already biased set of criteria. 

The second criticism comes in the role of the government which can be seen right now. On Friday the Chancellor delivered what was in effect a mini-budget. The OBR has been asked to create an analysis of it (in keeping with their charter) yet the government has chosen to not make this analysis public, thus undermining one of the core purposes of a financial watchdog (ie. to keep the Government honest about public finances.)

In the coming days we can expect the Government to emphasise their commitment to keeping the OBR impartial, yet it is its actions not words that it will ultimately be judged on and currently, the signs don’t look positive.

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