Several misconceptions exist about the panel's terms of reference, despite the fact that these are clearly published at the beginning of its reports to the Chancellor. One misconception is that the panel should stick to forecasting, and not make comments about policy issues. If this had been the role of the panel, it would have been arid indeed, and I for one would never have joined. But the terms of reference clearly ask us to consider, and make recommendations, about policy.
This sets the panel apart from other Treasury 'quangos' such as the Academic Panel, which gives advice to government economists about technical economic matters, especially forecasting methodology. If the Treasury had wanted a body of technicians giving it backroom advice about forecasting techniques, it would never have invented - or have needed to invent - the Forecasting Panel.
Another misconception is that the panel should be expected to be unanimous, or at least bound by the conventions of collective responsibility. Again, the Treasury never intended that this should be the case. In fact, the terms of reference specifically ask us to report both the 'central tendency' of our forecasts, and to report the range.
Furthermore, the seven members of the panel have also been asked to submit individual briefs, covering the outlook for the economy, along with our own specific policy recommendations.
The fact that the Treasury always intended to publish all of these separate briefs shows that it saw merit in diversity. If allowed to develop over time, the individual submissions in the panel's reports could evolve into a structured way of conducting an intelligent debate about economic policy, with all of the serious streams of thinking finding some representation.
Can anyone have seriously imagined that the seven people chosen to appear on the panel would find it easy to reach a consensus? The views held by each of us represent the outcome of half a lifetime of thinking about economics, mixed in with our own individual prejudices and experiences.
Did anyone think that Patrick Minford would suddenly 'see the light' when exposed to Wynne Godley's approach to economics? Or that Tim Congdon could convince the rest of us that we have been wrong in our interpretation of monetary conditions all these years? ('Aha, Professor Congdon, now you come to mention it, we can see that life should revolve around M4. What a pity no one brought it to our attention earlier.') Come off it]
Perhaps there would be realistic expectations about the panel if people knew more about how it works. It has been asked to produce a report for the Chancellor three times a year. For each of these cycles, two meetings are arranged, each lasting half a day.
The meetings are chaired by Alan Budd, the Government's chief economic adviser, and are attended by other Treasury economists and a secretariat.
The role of the Treasury officials is to facilitate the panel's discussion, not to be drawn into detailed discussion about policy. (If this were the case, then panel members would become government 'insiders', and would be instantly bound by the provisions of the Official Secrets Act).
Before the first meeting in each cycle, panel members submit drafts of the briefs that they will later publish. From these drafts, the secretariat then produces an annotated agenda for discussion.
The first meeting covers this agenda, highlighting points of agreement and disagreement. The secretariat then produces a draft report, which is discussed at the second meeting. If any individual dissents from any part of the report, this can be clearly stated in the final version. So no one is burdened by collective responsiblity in any sense.
The point about this is that panel membership is such a part-time occupation that there is simply no time to tackle any of the serious differences between members. Nor, to be frank, do the individual members owe to the panel a sufficiently strong sense of allegiance to feel that they should disguise their differences for the good of the institution.
Some such communal spirit may develop over time; in fact, I am happy to report that the meetings themselves have been friendly and constructive. But none of us sees the panel as the key outlet for our work, and never will as it is presently constituted.
Despite all this, anyone who has taken the trouble to read the panel's two reports will see that important areas of broad agreement have emerged (though in general these are the product of varying coalitions, and are rarely unanimous). In the first report, for example, there was a clear recommendation not to increase taxes this year to reduce the budget deficit, and a unanimous recommendation to change the funding rule.
In the second report, there was a consensus that interest rates should not be cut immediately, but that they should come down if sterling appreciates significantly.
There was also a clear tendency to support a tightening in the fiscal stance over the medium term, offset by easier monetary policy. There was also a surprisingly large amount of agreement about the outlook for the economy in the next 18 months - solid output growth with very little inflation pressure.
Not surprisingly, the press has shown little inclination to report any of this rather mundane output in a serious fashion. Instead, it initially sought greatly to inflate the importance of the panel, which was never likely to be more than a very minor cog in the economic policy machine. Then it showed interest only in disagreements between panel members, and to show how unwise the 'wise men' really were.
It is most unfortunate that some panel members fed this tendency by making personal attacks on each other in the media.
Many people see in all this a triumph for Treasury foresight. They believe that the Treasury's original reason for inventing the panel was to discredit the idea that outside advice was needed, and to demonstrate that outside forecasters had no monopoly on accuracy. But it was possible to take a more optimistic view, and it still is.
Perhaps the Treasury really did feel that it had become too cloistered, and should expose itself to outside thinking. Perhaps it really did believe that an external 'referee' might limit the tendency of politicians to make policy decisions for short-term electoral reasons. Remember that the existence of the panel was announced in the 1992 Mansion House speech, just after sterling had left the European exchange rate mechanism.
It was seen, along with the Bank of England's Inflation Report, as a check on the Government's ability to pursue inflationary policies for political ends.
An independent Bank of England would make this less necessary. Until then, the panel might have a role to fill. If permitted to do so by Kenneth Clarke, the panel should retreat into a darker corner, do some useful work, and try to earn its keep.Reuse content