From 1997, the key decisions on tax and spending were determined by a fiscal framework based on meeting a set of fiscal rules. Whether those decisions were consistent with meeting the rules in the future was measured using forecasts for borrowing made by the Chancellor. While the Treasury produced economic and fiscal analysis and used its macroeconomic and other models to forecast the economy and the public finances, the key judgments used to produce the forecasts under successive governments were the Chancellor’s.
The OBR will make an independent assessment of the public finances and the economy for the emergency Budget. For the first time, the forecasts will not be determined by the Chancellor’s judgements; the Chancellor will accept the forecasts from the OBR for the Budget and Pre-Budget report. The independence of the OBR’s judgements will ensure that policy is made on an unbiased view of future prospects, improving confidence in the fiscal forecasts.
The Chancellor will retain responsibility for fiscal policy and will set the fiscal mandate, his target for fiscal policy. He has instructed the Treasury to provide the OBR with full access to the data and analysis necessary for it to scrutinise the public finances.
In each Budget and Pre-Budget Report the OBR will confirm whether the Government’s policy is consistent with a better than 50% chance of achieving the forward looking fiscal target set by the Chancellor. Basing policy decisions on a realistic assessment of the public finances, including of the uncertainty inherent in any forecast, will improve the quality of fiscal policy-making, according to OBR.
Sir Alan has recommended that the Treasury appoint Geoffrey Dicks and Graham Parker to complete the 3-member Budget Responsibility Committee. They will lead the work of the OBR on an interim basis.
The Queen’s Speech will provide for legislation to establish the OBR on a permanent, statutory basis. Sir Alan Budd and the BRC will be advising the Chancellor on the arrangements for the permanent OBR.
Sir Alan Budd said: “It is quite remarkable that the Chancellor has given us the authority to produce independent forecasts for the Budget and Pre-Budget Report and to provide a public assessment of the action needed to achieve his fiscal mandate, and I consider it the most exciting challenge of my professional life.
“We are not claiming that we shall get the fiscal forecasts right; it is easy to demonstrate that that is impossible. Above all, we shall be emphasising the risks and uncertainties; but every judgement will be ours and we guarantee the independence and integrity of our work. We shall also increase the transparency of the forecasting process. We hope that the result will be greater credibility and an improvement in the quality of the fiscal decisions that will have to be made."
