Ed Balls, the shadow chancellor, has declared he’d like the Office of Budget Responsibility (OBR) to assess Labour’s tax and spend policies before the next election. Robert Chote, the head of the OBR, and Andrew Tyrie, the Conservative chair of the Treasury select committee, have both said they think this could be a good thing. Others have immediately denounced the whole idea.
Despite the misgivings of many (including me), the OBR has turned out to be fairly independent of government (largely because Chote is a ferociously independent chair). Its track record on forecasting hasn’t been brilliant, but then nor has anybody else’s in the past few years. It clearly doesn’t have enough resources and it still looks far too close to government.
Having a strong, independent centre for analysis of proposed budgets and their impacts seems like a good idea that has gained considerable ground internationally (see this recent OECD presentation).
The CBO was established in the 1970s and its current mandate is to provide the Congress with:
• Objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the federal budget and
• The information and estimates required for the Congressional budget process.
Joyce details how the CBO has struggled against assaults from both sides of Congress on its reports and independence, but has nevertheless emerged as “a powerful and influential arbiter of the economic and budgetary effects of policies”.
A Parliamentary Budget Office (PBO) would not be an exact parallel, because of parliament’s currently very different (self-limiting) role in the budget process.
Under the 300-year old Standing Order 48 of the House of Commons, only the government can make proposals to spend public money and parliament can only reject or reduce them, not make its own proposals. This has by convention been extended to taxes as well, so parliament can only limit or reject taxes, not propose them.
Although there have been minor changes to expand parliament’s role in the budget process, in practice it has very little say, other than an outright rejection, over government plans. In almost 100 years there have only been about 20 successful amendments to budgets.
So under the current system a PBO would have a very limited role in relation to budgets, although this could change if parliament wanted it to.
The other key role of the CBO – which is also emulated in several other countries – is that it examines any policy proposals from any party for their economic and fiscal impacts. We could certainly do with that. The past 20 years of British politics has been littered with debates over policies which have produced more heat than light about the real consequences of different policies.
Back in 2001 the Labour government was underspending by £10 billion, a fact that went unreported and undiscussed in the general election campaign of that year, something which undermined our democratic process as I pointed out at the time. A PBO could help to overcome these sorts of problems.