Should technocratic bodies like the OBR have a greater role in guiding UK fiscal policy?

28th May 2024

Should technocratic bodies like the OBR have a greater role in guiding UK fiscal policy?. In a new opinion piece, Ben Zaranko argues not.

Established in 2010, the Office for Budget Responsibility (OBR) is responsible for producing independent economic and fiscal forecasts on behalf of the government; assessing the government's performance against its fiscal targets; scrutinising policy costings; and carrying out numerous analyses of fiscal risks and sustainability. Its creation is generally viewed as a successful innovation.

Perhaps in light of that success, there have been numerous proposals for extensions to the responsibilities and remit of the OBR. For example:

In her Mais Lecture, the Shadow Chancellor Rachel Reeves promised to guarantee in law that any government making "significant and permanent tax and spending changes" will be subject to an independent forecast from the OBR; promised to ask the OBR to report on the long-term impact of capital spending decisions; and promised only to change or suspend the fiscal rules if the OBR declared the UK to be in an economic crisis.

A recent report by the Institute for Government recommended that the OBR's remit be expanded along numerous dimensions. Among other things, this included the suggestion that the OBR should be handed greater power and flexibility to call out the ‘gaming' of fiscal targets, and handed the responsibility of determining when fiscal rules should be suspended.

As part of a much broader set of recommendations around the design of the UK fiscal policy framework, the National Institute for Economic and Social Research (NIESR) have argued that the OBR (or a separate fiscal council) should publish a report ahead of each fiscal event outlining the areas where policy focus is needed, to which the Chancellor would then have to respond.

Others have gone further still and suggested that the OBR (or a similar technocratic body) ought to have responsibility for setting the government's overall fiscal stance. For example:

The New Economics Foundation (NEF) have suggested that fiscal rules be replaced by an independent advisory committee within the OBR or elsewhere, with responsibility for setting a target range for the primary balance (i.e. the level of borrowing, excluding spending on debt interest), leaving the government to choose the combination of taxes and spending needed to achieve it.

The Social Market Foundation (SMF) have similarly suggested that an independent Fiscal Policy Committee should recommend a target range for government borrowing and that "we should complete the process of delegating demand management to technocrats".

The specifics of these proposals differ (the NEF and SMF proposals go much further than others) and there is an important distinction between advising and deciding. Nonetheless, the desired direction of travel is clear: a greater role for technocrats in guiding UK fiscal policy. The objective here is not to outline an institutional ‘IFS view' on any of the specific recommendations listed above (all of which are thoughtful and made in good faith), but to reflect on what one would have to believe for this direction of travel to be desirable.

In each case, a key implicit assumption seems to be that fiscal policy involves a set of questions to which there is a "right" technical answer. In the case of Rachel Reeves and the Institute for Government's proposals, that question is determining when the UK is an economic crisis and thus when the fiscal rules should be suspended.

In the case of the NIESR proposals, that question is determining what policy issues a Budget or Spending Review ought to prioritise and address. In the case of the NEF and SMF proposals, that question is deciding what the government’s fiscal stance ought to be. In all cases, the proponents judge that elected politicians, left to their own devices, are unlikely to reach that "right" answer - hence the need to delegate to technocrats.

Herein lies the challenge. Are we sure that any of those questions do in fact have a "right" answer? If not, should we be delegating it to technocrats rather than leaving power in the hands of elected politicians?

Read the full article at The institute for Fiscal Studies HERE