Treasury Committee sets out requirements for independent OBR

Committee Chairman, Andrew Tyrie, said:

“In creating the OBR in a bid to bolster the credibility of UK fiscal forecasting, the Chancellor has taken a bold step, which is not without risks.  The task now is to make this proposal work to best effect and to underpin it by statute.

For the OBR to succeed, it will have to be, and be seen to be, independent, particularly after the difficult early period of the interim body.

Picking the right people for the OBR is important, but not enough. The Committee last week approved the appointment of Robert Chote to chair the organisation for the next five years and is pleased that someone who has demonstrated both his economic expertise and strong independence of mind will be running it. We will scrutinise his work carefully.

However, the OBR should not be reliant on the reputation of one individual. Our Report today sets out recommendations for the legislative framework of the OBR.”

As a minimum the Report recommends that the legislation should include:

• the establishment of the OBR as an institution with its own legal personality, responsible for appointing its own staff;
• a requirement on the OBR to act transparently, objectively, and independently;
• a clear remit and set of core tasks, (which the Committee spells out);
• a requirement that the TSC should have a veto over appointment or dismissal of the Chair of the permanent body and the members of the Budget Responsibility Committee;
• provision for a small group of non-executive directors to support, pro bono, the Budget Responsibility Committee;
• a requirement that Government officials support the OBR when it is preparing forecasts;
• a requirement that the OBR has a right of access to the information it needs;
• a review of the OBR’s performance, remit and institutional accountability arrangements within five years, including whether it should become a Parliamentary body.

The Committee’s role:

After the row over the release of data by the interim OBR on 30 June 2010, the Government responded by seeking to bolster the OBR with a requirement that the appointment of the Chair require the specific approval of the TSC.  The Committee has obtained the Chancellor’s agreement to extend this approval: at the request of the Committee Chairman, the Chancellor has now conceded that this control should be extended similarly, to include dismissal.

Andrew Tyrie explained:

“It would be wrong for a Chancellor to retain the power unilaterally to dismiss an OBR Chair because he did not like their judgements. We now have a double lock. This will protect the OBR against this kind of political interference.”

The Committee has also recommended that it should have similar powers and responsibility over the other two members of the BRC.

As part of its work the Committee intends to hold regular evidence sessions with the OBR.

Andrew Tyrie said:

“It is vital that the OBR commands confidence across party boundaries. The Treasury Committee will take evidence from the organisation regularly as part of the budget process. We will intervene if we believe the OBR’s independence is threatened. We expect the members of the Budget Responsibility Committee, or the non-executive directors, to report any concerns they have to us. In particular, we would expect to be told immediately about a threat, or appearance of a threat, to the OBR’s independence.”

Success criteria: 

The success of the OBR should be judged against its reputation for independence, its lack of bias, its high professional standing among experts and the comprehensibility of its reports to non-experts.

The arrangements adopted for the permanent OBR should be subject to comprehensive review no later than five years after it is established by statute. This should include an  assessment of the OBR’s performance, remit and institutional accountability arrangements. In particular, the review should consider, in the light of experience, the case for the OBR becoming a full Parliamentary body, with its resources determined by the House.

Andrew Tyrie added:

“If it is to be successful, the OBR will provide clear, impartial forecasts and commentary which improve public debate. It will avoid being drawn into political controversy, even though the material it provides will inevitably be used by others in political debate.

The OBR’s work should lead to greater public understanding of the purpose and limitations of the forecasting process, and realistic expectations of what it can deliver.  The quality and authority of OBR forecasts can be measured over time, relative to other forecasts. Absolute accuracy is not a useful criterion.”