Transcript Document
Can we make a difference? Robert Chote Chairman Ken Dixon Lecture University of York 13 June 2011 Can we make a difference? “Some argue that we would have established greater credibility and legitimacy if we had gone further in institutional reform – by getting independent experts, if not to set the fiscal policy stance, at least to give a public view or to date the economic cycle. I am not sure myself, whether in practice such changes would have made any difference.” Ed Balls, Ken Dixon Lecture, 2004 • Outline of the lecture: – How and why have fiscal watchdogs become more numerous? – The remit of the OBR in international context – Demonstrating independence: governance and accountability – Demonstrating independence: transparency – Conclusion The spread of fiscal watchdogs • Countries with independent fiscal watchdogs – Longstanding: Netherlands, Denmark, US, Belgium – Recent: Sweden, Hungary, Canada, Slovenia, UK – Forthcoming: Ireland, Portugal, Slovakia • What qualifies? – “clear fiscal watchdog function” – “macroeconomic competence” – “high degree of independence from the political system” The rationale for fiscal watchdogs • Democratic governments prone to ‘deficit bias’ and ‘pro-cyclicality’ in management of the public finances • Possible sources of deficit bias – – – – – – Differential access to information Impatience Electoral competition ‘Common pool’ problems Use for macroeconomic management Exploiting future generations • But does this require an official fiscal watchdog? The remit of the OBR • “to examine and report on the sustainability of the public finances” (Budget Responsibility and National Audit Act) • Four main tasks: – – – – Produce two five-year forecasts for economy and public finances Judge progress towards the government’s fiscal targets Scrutinise Treasury costing of tax and spending measures Assess long-term sustainability and public sector balance sheet • Other supporting material: – Briefing papers, discussion papers etc. – Monthly commentary on Treasury/ONS public finance statistics Our remit in international perspective • Advisory body rather than policymaking body • Relatively narrow remit focused on fiscal analysis • Macroeconomic forecasting • Positive analysis rather than normative policy recommendations • Focus on existing policy rather than policy options • Official forecasts ‘contracted out’ Rights and responsibilities • Formally set out in: – Budget Responsibility and National Audit Act – Charter of Budget Responsibility – Memorandum of Understanding with HMT, HMRC and DWP • Important features: – – – – – Right to information and assistance from within government Multi-year budget made public Accountable to TSC which has appointment/dismissal veto Need to be accountable to but independent from politicians Non-executives can help in this relationship Transparency • Process: – Substantive contacts with Chancellor and his office logged – Forecast timetable published – Treatment of post-deadline measures published • Analysis: – – – – – – Diagnostics Simpler presentation of spending forecasts More variables and assumptions Additional information post-publication More methodological information Policy costings documents Conclusion • We can make a difference • All medium and long term projections need to be treated with caution because of huge uncertainties • But ‘contracting out’ can increase public trust • Forecasting not the only thing that is important • Can broaden public debate on long term fiscal challenges • Fiscal sustainability report a challenge and an opportunity