Robert Chote: Ready to hold the Chancellor to account

The Business Interview: The fiscal policeman is watching George Osborne. Sean O'Grady wonders whether he will be pressing charges

Settling into Robert Chote's spacious office at the Office for Budget Responsibility (OBR), I am immediately impressed by the books lying on the coffee table – Finance and Politics: A Historical Study 1783-1913, British Budgets 1887-1913, British Budgets 1913-1921. And the presumably equally dry British Budgets in Peace and War 1932-1945. Serious books for a serious man. If only more policymakers read a bit of history.

Appropriately for the nation's fiscal policeman, Chote's premises are next door to New Scotland Yard, and shared with the Attorney-General's Office. The OBR was set up last year by George Osborne in fulfilment of a long-standing pledge to make economic policy making more transparent and to bolster the fragile trust people had in economic and fiscal forecasts and other numbers. Too many episodes of double counting, reannouncements and bogus use of stats had fractured that in the past and, as director of the even more independent Institute for Fiscal Studies (IFS), Chote was one of the Treasury's toughest critics.

Osborne may also have been wary of the ritual whereby a Chancellor delivered a budget full of obfuscation one day and then the next day the IFS illuminated "the truth".

He is clear about what his body does. "I hope we're telling the truth and are to the best of our ability, but, for example,it is outside our remit to talk about distribution implications, the winners and losers from a Budget and whether it is progressive". That he says, is the IFS's job.

Is he embarrassed by the way his growth forecast have apparently gone awry? Referring to his years as a journalist on The Independent titles he smiles. "I spent 10 happy years doing your job writing about other people's economic forecasts. No sane person should..." he tails off, before adding: "You shouldn't bet the farm on any macro-economic forecasts being correct. We set out to make key judgments and to see how sensitive our judgements are, for example to how strong the recovery is or the pattern of growth."

He points out, for example, that a strong domestically led recovery will yield more tax revenues than one led by exports even though both would have the same headline number.

Similarly, inflation can be more or less harmful to fiscal forecastsdepending on where it falls; if it boosts tax revenues it is good, in that sense. Besides, it is fair to add that the OBR's forecasts have never been that far away from the mainstream.

The "trickiest" part of his forecasting job, he reveals, is estimating the "output gap" – the difference between what the economy produces and what it is actually producing, something Chote stresses will "always be an estimate not a number".

The point about the output gap is that it is crucial in determining how much of a budget deficit is "cyclical", and will disappear as the economy returns to normal, and how much is structural – left over even when tax revenues are healthy and unemployment costs low. Or as Chote puts it, "How much policy has to do the work and how much you can rely on the recovery to do it for you."

On this, Chote is keen to point to the publication of the "Blue Book" of national statistics later in the year, something that will tell us much more about what happened in therecession – it will be "really important". The smaller the output gap the larger the structural element of the deficit. If the OBR adjusts in the "wrong" direction it will make Osborne's job, targeting the structural defect, that much more onerous – and might even presage further spending cuts. "It's the old joke about he past being more difficult to predict than the future," he says.

"The Blue Book will have information that we and others are going to have to get our teeth into – it's worth highlighting that as a an additional important piece of information on top of the run of the mill numbers".

For that reason he was undismayed by the International Monetary Fund's recent critical evaluation of the UK. "If you make the output gap smaller by the amount the IMF did then you basically get the same view of the matter, so that's reassuring. Its always an estimate you can never of formally identify it. So what we do is have a central view and then ask whether the Government is more or less likely to hit the target."

Most recently the OBR has been thinking about what sort of issues a Government in power in 2061 might be faced by given current demographic trends and foreseeable pressures on tax revenues and public spending. One point that was supposed to come out of that work, that is from the political point of view in the Treasury, is that the "burden" of public sector pensions was supposedly unsupportable.

But Chote's figures, like the Hutton Report's, showed no such thing, and rather showed teachers' and other pensions declining as a proportion of national income, even if none of the current reforms are implemented. That wasn't the spun impression that emerged though. When I suggest that the Treasury was perfectly content to have gigantic numbers floating around the political debate rather than a sober account he smiles and says "that's for you to say". The OBR's view is that any estimate for the future cost of pensions can be hugely swayed by an arbitrary choice of interest or discount rates not actual payouts.

Also, it is "health is where most of the pressure shows up" adds Chote, both in the US and the UK. "If productivity grows more slowly in healthcare than in the rest of the economy, governments mightincrease health spending more quickly to compensate. That would only add to the long-term pressures on the public finances from an ageing population."

By all accounts the relationship between the OBR and the Treasury is workmanlike and formal rather than luvvie-duvvvie, and where the OBR's numbers and the Treasury's policies are moulded in an iterative process, and one which makes a clash between the two unlikely.

Still, I'm left with the impression that this man of independent temperament wouldn't be entirely afraid of feeling the Chancellor's collar if needs be, and more fearless in the face of the establishment than his next-door neighbours in the Met.

A life in figures: Robert Chote

* Born 24 January 1968

* Chairman of the Office for Budget Responsibility since October. He was director of the Institute for Fiscal Studies from 2002 to 2010, an adviser to the IMF from 1999 to 2002, Economics Editor of the Financial Times from 1995 to 1999, and as an economics writer on The Independent and Independent on Sunday, 1990 to 1994.

* He was educated at Queens' College, Cambridge; at City University, London; and Johns Hopkins in Washington DC.

* Married to Sharon White, the director general for the Middle East and North Africa at the Department for International Development. She will move to the Treasury in October 2011 to lead a review of the department's response to the financial crisis.

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