Office for Budget Responsibility

Jim Shannon Excerpts

Tuesday 24th July 2018 Westminster Hall

[Luke Graham (Ochil and South Perthshire) (Con)]

I beg to move,

That this House has considered the remit of the Office for Budget Responsibility.

It is always a pleasure to speak under your guidance, Mr Gray. I thank those who have turned up on the last day of Parliament before recess; I know that we are all keen to get back to our constituencies, but the opportunity to debate the remit of the Office for Budget Responsibility was evidently too good to turn down. Before I begin, I would like to acknowledge the OBR, the Congressional Budget Office and the CPB in the Netherlands, as well as the House of Commons Library, as the key sources of my speech.

Credibility has become an enormous problem in modern-day politics—the credibility of not only individual politicians but policies and the numbers in our political discourse. The old adage rings true: Members often use numbers as a drunk man would use a lamp post—as a prop, as opposed to for illumination. We need to get back to numbers helping to illuminate our debate. They should help to inform decision making to bring a degree of objectivity to our debate—in this Chamber and the main Chamber.

I will start by looking in depth at the OBR’s current powers, in order that Members better understand why I believe we should expand its remit. First, I want to provide a brief overview of what the OBR currently does. The OBR was created by the coalition Government in 2010 to provide independent, authoritative analysis of the UK’s public finances, on the back of the 2008 financial crash. It has five main roles, and I will look at each of them, starting with economic and fiscal forecasting.

Twice every year—for the Budget and for the spring statement—the OBR produces five-year forecasts of the economy and the public finances. Forecast details are set out in the “Economic and fiscal outlook”, while the annual “Forecast evaluation report” it publishes each autumn compares the forecasts to the subsequent out-turns and draws lessons for future forecasts. The forecasts also incorporate the impact of any tax and spending measures announced in the two statements by the Chancellor.

The OBR also has a responsibility to evaluate the Government’s performance against targets, using the public finance forecast to judge the Government’s performance against their fiscal and welfare spending targets. Furthermore, in the “Economic and fiscal outlook”, the OBR assesses whether there is a greater than 50% chance of hitting the targets under the current policy measures.

For example, in March 2014, the Government set a self-imposed cash limit on a subset of their social security and tax credit spending. In the 2016 autumn statement, the Government redefined the cap to apply only in 2021-22, preceded by a pathway to that fixed date. The charter for budget responsibility requires that the Government set a new welfare cap in the first Budget of a new Parliament, so the cap was adjusted in the 2017 autumn statement, which applied to 2022-23. It is the OBR’s responsibility to monitor the Government’s progress against that pathway and to assess in each “Economic and fiscal outlook” report whether they are on course to meet the cap in the target year.

The OBR’s annual “Welfare trends report” also examines the drivers of welfare spending, including elements inside and outside the cap. Those represent just some examples of how the OBR continues to monitor and evaluate the Government’s performance against their own targets.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Gentleman on bringing this matter to Westminster Hall for consideration. Does he agree that the OBR’s team has withstood internal and external scrutiny and audits extremely well? There is certainly scope to expand its remit, to deliver a high level of accountability across the wider region. In other words, what the OBR does now could go further. Does the hon. Gentleman agree?

[Luke Graham]

I agree, and I will go into more detail later on exactly how I propose the powers should be extended and how to move forward.

The OBR provides sustainability and balance sheet analysis, which assesses the long-term sustainability of the public finances. The OBR’s “Fiscal sustainability report” sets out long-term projections for different categories of spending, revenue and financial transactions, and assesses whether they imply a sustainable path for public sector debt. That has arguably been a particularly important metric as we have sought to make the public finances more manageable and sustainable after the financial crash in 2008. There was a kick there aimed at the last Labour Government, but I will resist that for now.

The “Fiscal sustainability report” also analyses the public sector’s balance sheet, using both conventional national accounts measures and the whole of Government accounts, prepared using commercial accounting principles. Since 2016, the “Fiscal sustainability report” has been published once every two years, reflecting the frequency with which the Office for National Statistics updates its population projections.

The OBR evaluates fiscal risks every two years by publishing a comprehensive review of the risks from the economy and financial system in its “Fiscal risks report”. The first was published in July 2017, and the OBR analysed tax revenues, public spending and the balance sheet and included a fiscal stress test. Furthermore, the OBR produces central forecasts and projections for the public finances, while the “Economic and fiscal outlook” and the “Fiscal sustainability report” include discussion of the risks—both upside and downside—to those forecasts and projections.

The whole of Government accounts provide further information on specific fiscal risks, notably contingent liabilities such as Government guarantees, and that is in the “Fiscal sustainability report”. As a member of the Public Accounts Committee, I have the joy of taking part in, and leading on, the inquiry into the whole of Government accounts. The Committee recognised the fine work of the Departments and the civil servants that pull together those accounts, which really are of a very high standard and are certainly world leading.

--- Later in debate ---

[Jim Shannon]

I thank the hon. Gentleman for the very detailed, comprehensive speech that he is making. He has outlined clearly the issues in relation to this organisation; I just wonder whether he has given any thought to the idea that teamwork makes the dream work. Does he agree that there is a need to ensure that there is constant training of team members, so that the natural ingoing and outgoing nature of the job that they do does not affect the high standard of work being provided by the office? In other words, it is important that the staff are trained and kept up to date with all things that are happening in order for a good organisation to work better.

[Luke Graham]

I do agree. As I have mentioned, a hallmark of the CBO is the high standard of staff it employs. That is based on their expertise and ensuring that the right people are hired for the right role and that training is maintained in the office as well, so that expertise is not lost with standard staff turnover.

The CBO maintains its objectivity through a rigorous system of checks and balances. All the CBO’s cost estimates and reports are reviewed internally for objectivity, analytical soundness, and clarity. That process involves many people at various levels in the agency. Analysts’ consultations with outside experts help them to hear all perspectives on an issue.

Furthermore, the CBO evolves as the needs of Congress evolve. It has remained true to its original mission, but, as legislation has grown more complex, it has found itself spending more time providing preliminary analysis and technical assistance during the drafting stage of laws. The CBO is being asked more often to prepare cost estimates for Bills that are heading for votes without being marked up by committees first.

I emphasise that the CBO is strictly non-partisan. It conducts objective, impartial analysis, and importantly that analysis is accepted among economists and, consequently, by both parties in Washington. The CBO has historically issued credible forecasts of the effects of both Democratic and Republican legislative proposals.

That brings me to the last thing that I want to propose for the OBR. It is crucial that the independence of the Congressional Budget Office is accepted and beyond reproach, because it monitors and marks the policies and proposals of not only the Government, but the opposition. The independence of the Office for Budget Responsibility is, I believe, beyond reproach, but it only monitors Government policies. The Budget Responsibility and National Audit Act 2011, which founded the OBR, states that where any UK Government policies are relevant to the performance of the OBR’s duty of examining and reporting on the sustainability of the public finances, the OBR

“may not consider what the effect of any alternative policies would be.”

That rules out analysing Opposition spending plans.

My proposal, therefore, is to extend the powers of the Office for Budget Responsibility to create a body that replicates the function of the CBO in the United States, providing independent analysis to hold spending commitments to account. The aim of my proposal is to extend the powers of the OBR, providing it with additional responsibility to assess, analyse and score every piece of legislation that goes through the Houses of Parliament for financial or fiscal impact. It will maintain its strict independence, making it acceptable on both sides of House, regardless of which party is in government.

The purpose of my proposal is to enable the OBR to provide independent information and analysis, in order to combat “fake news” and misinformation being circulated on Government and Opposition spending plans. Wild spending commitments have been made, particularly by Opposition parties in the past, for example over the abolition of tuition fees, with no responsibility to deliver while out of office and, therefore, no accountability.

Let us look at the Brexit debate. How much better could the debate have been had there been an independent body, such as the OBR, providing accurate analysis of the impact of the costs and opportunities of Brexit? It would have taken the pressure off the Government and given us analysis that would be accepted by all parties. We could then have debated how to make the best of Brexit—or not—rather than the endless debates we have had over bus-side promises, scaremongering over power grabs or whether the Brexit deal was sufficiently hard, soft or anywhere in between.