Should the OBR cost Opposition proposals?

Today has seen a debate over whether the Office for Budget Responsibility should cost Opposition policies. Sajid Javid appeared on the BBC to defend the Government’s decision not to allow it. He avoided criticising the idea but pushed the Government’s line that now is not the right time to extend the OBR’s mandate. On the other side of the debate, Simon Wren-Lewis criticises the Government for delaying.

am a big fan of extending the OBR’s responsibilities but there are solid reasons for the Government to demur. Overseas experience shows that giving fiscal councils too much responsibility too soon can jeopardise their existence. The major risks to a young fiscal council, such as the OBR, tend to be changes in the ruling party and changes in the council’s leadership. The Hungarian council, for example, was established by one Government then swiftly neutered by the next when it was critical of the new Government’s plans.

The OBR faces the possibility of changes in the ruling party as early as May, and its charismatic Chairman, Robert Chote, will then have been in the role for nearly five years. Thankfully, the Labour party’s shadow Chancellor, Ed Balls, has been a strong supporter of the OBR in the past Parliament. Nonetheless, the organisation will need to work hard over the coming year to maintain the credibility that it has established, particularly if Chote departs.

That alone might be enough to postpone changes in the mandate until next year but the risks are multiplied by the massive expansion of the OBR that would be required if it were to assess Opposition plans. Civil servants do not advise the Opposition but they are heavily utilised by the OBR in preparing its reports. For the preparation of its reports the OBR uses an equivalent of 125 full-time staff each year and directly employs only 6 of them. The remainder are drawn largely from HMRC and DWP, with a few from HM Treasury. The Dutch CPB, which costs Opposition policies, employs about that many itself and the American CBO employs closer to 250 staff. For the OBR to cost Opposition policy it might need to grow to around ten times the current size. That expansion would seriously challenge its culture and quality; not ideal prior to a general election where its work is being scrutinised with ever greater interest by economists, journalists and politicians alike.

Together, those factors led an independent review of the OBR to recommend that

…caution be exercised in considering the expansion of the OBR’s mandate (e.g. costing certification of opposition manifestos). The OBR may not have the organisational capacity to expand its remit without further drawing on the resources of other government departments. In addition, the particularly narrow legal framework of the OBR and its interdependencies with the executive branch may risk creating perceptions of conflicts-of-interest.

An expanded role for the OBR is a very good idea in principle, but the institution needs to endure beyond one Parliament and one leader before it is ready to tackle such an enormous and politically sensitive task.

Update: For more details on overseas implementation check out Robin Munro’s post at the Institute for Government’s blog.

8 replies
  1. Eric Crampton
    Eric Crampton says:

    Would it really take hundreds of staff? Think about the NZ case. Jim Rose did the whole set on his own on contract for the Taxpayers’ Union. I’m sure a cast of hundreds of Treasury experts would have done a better job, but diminishing returns kick in somewhere.

    • jamesz
      jamesz says:

      Yes, I agree that it could be done, but not to a standard equivalent to the Government’s costings. A lot of the time is in running the Government’s tax and expenditure models, which would be hard to cut out without compromising the process. You could just use rules of thumb but it wouldn’t put the Opposition costings on the same footing as the Government’s. I guess it would be a bit of a lottery as to who the rules of thumb would favour but, at the very least, the final report would likely say that they’re not comparable.

        • jamesz
          jamesz says:

          Sure, and I think that the office has actually forced the Government to do that with its Budgets, too. A useful antidote to last-minute decisions!

            • jamesz
              jamesz says:

              It’s funny you should use the term ‘threat’ since, in the UK, it is the Opposition that want to be costed to validate their proposals and the Government that refuse to allow that.

    • jamesz
      jamesz says:

      Yes, I agree that it could be done, but not to a standard equivalent to the Government’s costings. A lot of the time is in running the Government’s tax and expenditure models, which would be hard to cut out without compromising the process. You could just use rules of thumb but it wouldn’t put the Opposition costings on the same footing as the Government’s. I guess it would be a bit of a lottery as to who the rules of thumb would favour but, at the very least, the final report would likely say that they’re not comparable.

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