When the Office for Budget Responsibility (OBR) was established with great fanfare in May it was presented by the Government as a revolution in economic policy-making. Here was a reform, we were told, of similar magnitude to the granting of independence to the Bank of England in 1997. There was no suggestion at the launch that Sir Alan Budd was a temporary appointment as chairman. Yet now it has emerged that Sir Alan will leave this post at the end of the month.
The Treasury's assertion yesterday that Sir Alan's departure this summer was always expected is scarcely credible. After all, revolutions do not happen every day. Surely the Government would have tried to make a permanent appointment to such an important new institution, or, at the very least, made it clear that Sir Alan was only a caretaker?
There were some sound arguments for the creation of the OBR. There was a case for a guardian of the integrity of financial information presented by the Government and a body with the authority to tell ministers uncomfortable truths about the state of the public finances. But we warned when the OBR was established that trouble would lie ahead if the Government used its work to provide a crude economic justification for what are, ultimately, political choices on the public finances. Yet that is precisely what ministers have done.
To be fair, the OBR made a good start in establishing its independence and credibility. Its pre-Budget forecast confirmed that the public finances were in a rather better condition than the previous government had predicted, making the assertion of the Chancellor, George Osborne, that the situation is "worse than we thought" look ridiculous. But it has, sadly, been downhill ever since then for the OBR.
Mr Osborne's argument that last month's Budget was "unavoidable" is misleading. A major retrenchment was indeed unavoidable under whatever party won the election. Labour itself had committed to a tightening of £73bn by the end of the Parliament. But the coalition has chosen to go further and faster, despite the lack of any pressure from the bond markets to do so. Mr Osborne intends a consolidation of £113bn by 2014-15. And he has decided to begin cutting public spending this year, while the private sector is still manifestly fragile.
The problem for the OBR is that the Government has used Sir Alan's tentative forecasts on the effect of these austerity measures at every possible opportunity to justify the Budget in recent weeks. This has, inevitably, undermined the OBR's political impartiality. The OBR's independence was also called into question when it released information on projected job losses last week, which provided useful rhetorical ammunition for David Cameron at Prime Minister's Questions. And now the OBR's credibility has been dealt a potentially mortal blow by the surprise news of Sir Alan's departure.
Speculation about why he is leaving has already begun. Was there unhappiness about political pressure behind the scenes? Was there disagreement about what the OBR's remit will be when it is eventually established on a statutory footing? The fact that the Government did not have a replacement lined up for Sir Alan will only add to suspicions that this was not an expected departure. The choice of his successor now takes on an invidious new significance for the Government. The suspicion is that the new head will be chosen on the basis of his or her willingness to take part in a political game that Sir Alan refused to play.
The OBR was intended to shore up economic confidence in the Government. But this institution's troubled inception may end up dealing it a serious blow.Reuse content