Is the OBR likely to succeed?
In 2010 the government set up the Office for Budget Responsibility, as an independent organisation to issue independent estimates and forecasts for the UK economy and government policy. With the same tools as the Treasury, they are free to investigate any issue, including government pension liabilities. The government has hoped that this move will bring more credibility to the government, with many previous forecasts plagued by inaccurate estimates. As with any policy, this move has many positive and negatives that mean that it can be evaluated to see if it is a good policy idea and is likely to be successful in the future.
One of the main advantages is the fact that the organisation is independent, whereas previous policy functions have been part of the government. Although this independence is limited, with funding and appointments still coming from the government, this is still likely to be more credible. So far, independence has been solid, with good appointments made by the government and freedom to investigate any issues, such as pension liabilities given to the organisation. This extra credibility should boost the government, bringing lower bond yields, saving money, and extra incentive for the government to look to long term policies, rather than just ideas that bring a short term boost.
Credibility is also boosted by the fact that all of the reports are published for the public to view, with the OBR also hosting public events to explain its actions. Recent releases have also been more detailed than under previous institutions, providing more explanations which should help people to understand forecasts. Extra freedom should also help to find any pressing issues that could cause problems, so that they can be rectified before they cause harm, creating a sustainable environment. So far, this has bought to light that the government is unlikely to meet its fiscal mandate, to create a balanced budget, without further policy action, forcing the Chancellor to slightly adjust his course. This is action that might not have happened without an independent organisation, already bringing more accountability.
On the other hand, the policy also has various disadvantages that harm the potential of the OBR. One of the the main reasons for this is that the government still has control over the organisation, so could possibly still exert some control over it. This is because it is funded by the government, with the employees part of the government, meaning that they could have some incentive to side with the government. So far however, this hasn’t been the case. At the same time, the mandate means that it is not allowed to investigate alternatives policies that could potentially be better, meaning that it doesn’t look at better opportunities and can only consider what the government has already suggested and likely already planning to do – suggesting little influence. However, this is likely done to ensure that it isn’t going to become a “shadow government”. Despite this, it does mean that the IFS and Tax Payer’s Alliance, which look at other policies, such as different tax rates, are still better organisations.
Additionally, the OBR only needs 50% likelihood of success for it to approve the idea. This is very low, likely to mean that many policies suggested by the government are likely to be approved, but still have a very high chance of failing. Therefore, it’s likely that the OBR doesn’t produce better quality results since there is still possibly a 50% chance of failure. To gain credibility, it should ideally be around 75%. Early indications have shown that this is likely to be true, with the forecasts not much more accurate than previous Treasury forecasts before the OBR was created. Finally, the Chancellor can just reject the official forecasts and use his own, yet again meaning that the OBR wasn’t set up in the best possible way.
Overall, it is clear that the OBR policy has both advantages and disadvantages. Creating a new independent organisation has a lot of benefits, bringing more credibility to forecasts that should hold the government more accountable. With the freedom to investigate any issues, it should also bring up potential problems. However, there are limits to their independence and the mandate that set up the OBR has various problems, including the limitations towards investigating alternatives and how they approve ideas. This means that it isn’t as good as possible, and with early indications that the OBR isn’t more accurate, it is hoped that future developments will be better. At the moment it doesn’t seem like it is very successful, especially since many outside organisations already do a lot of the same job, including investigation possible problems, such as pensions, so it isn’t as good as it first seems.