For over a decade, the Office for Budget Responsibility (OBR) has been a driving force behind the UK's fiscal policy. Created in 2010 to introduce transparency and independence into government economic forecasting, the OBR was designed to prevent ministers from "fiddling the figures." Yet critics now argue that the institution has become too dominant—shaping the course of the nation's economy without democratic oversight.
Financial Times journalist Chris Giles recently broached the growing concern that the OBR's function has gone beyond what was originally intended. At the heart of the issue is the manner in which government ministers and chancellors now treat the OBR's forecasts as holy writ—placing enormous weight on predictions that are, in many cases, little more than educated guesswork...
Take productivity, for instance. The OBR has forecast a mere 0.1% UK productivity growth this year—a rate which pales in comparison to the 2% pre-2008 financial crisis average. And despite this being such a dire forecast, ministers continue to make fundamental policy decisions based on these projections. This reliance is troubling given that the OBR itself is a relatively small body of 52 unelected bureaucrats, some of whom lack specific expertise in key areas such as productivity.
Over-reliance on OBR Forecasts...
Giles argues that the government has allowed the "watchdog's tail to wag the dog." Rather than regarding OBR forecasts as one input among many, the Treasury and others have started to accept them as the final word. This gives the OBR an undue influence over major tax-and-spend decisions—areas which, arguably, ought to remain firmly within the realm of elected politicians.
The problem is not so much the existence of the OBR, but how its forecasts are being used. Forecasting the economy is very difficult, and even the best models cannot accurately forecast outcomes. By placing too much emphasis on forecasts, the government may be tying itself to rigid policies based on uncertain numbers.
There is a strong case to be made for restoring balance. Diminishing the salience given to OBR forecasts in fiscal policy-making and rendering them advisory is one option. Another is to invest in more open and comprehensive forecasting procedures engaging a broader range of specialists and institutions. Most importantly, ultimate decisions need to remain with those answerable to the public.
As Giles points out, the UK's most sensitive budget decisions are now being dictated by unelected bureaucrats in secret. If we value democratic accountability, it's time to reconsider. The OBR was set up to increase transparency, not to become the final arbiter of economic truth.
By reining in the OBR's excesses, we can return to a system where elected policymakers—guided, rather than instructed by projections—take the decisions that shape our economic future.