OBR independence row 'inevitable'
Updated on 09 July 2010
The row that has broken out over the independence of the Office for Budgetary Responsibility was inevitable, writes Channel 4 News economics producer Neil MacDonald, given the debate over cutting public sector debt.
The row over the independence of the Office for Budget Responsibility was perhaps inevitable as it was always going to find itself right in the heart of the major political and economic row of the next five years - how fast and how deep do the cuts in the public sector deficit need to be?
The irony, of course, is that George Osborne presented the OBR as a way of defusing this toxic political row. When he talked of the benefits of such an office earlier this year, he specifically drew a parallel with Labour's decision to give control of monetary policy to the Bank of England in 1997, saying: "The benefits of fiscal councils for sustainable fiscal policy could be as profound as those of independent central banks for monetary policy".
But the point missing in this parallel is that the Bank of England was always a very different beast to the OBR. The bank's history stretches back to 1694. It's an institution with a strong streak of independence already burnt into it. Any governor operates with his own status and credibility and rules his own roost in his own building. Arguably, any governor's status is as high as any politician he has to work with.
More from Channel 4 News on the Office for Budgetary Responsibility
- What do job loss predictions mean?
- UK growth forecast revised down
- Faisal Islam: OBR doesn’t make case for savage cuts
- Faisal Islam: new forecast brings problems for coalition
- Faisal Islam: independent audit could haunt Osborne
On top of this, control of monetary policy was already passing into the orbit of the governor for several years before full independence - Ken Clarke as Tory Chancellor in the mid-nineties would meet each month with then Governor Eddie George to thrash out the decision on interest rates.
As a result, the bank didn't have as much to prove in 1997 as the OBR does now - given its no more than a handful of people currently stuck somewhere in the heart of the Treasury and working with data provided by the people they are meant to be scrutinising.
The reality of the British economy since the 1970s has been a history of disappointment - and governments have always searched for some type of anchor which might hold their economic policies in place as UK plc has lurched from boom to bust.
Sadly, each anchor has in turn been torn from its moorings. So in the seventies, incomes policies led to industrial strife, culminating in the winter of discontent. In the eighties, targeting the money supply was tried, then targeting the exchange rate, then entering the European exchange rate mechanism. All, of course, failed to some degree. New Labour's fiscal rules attempted the same job of constraining government policy before they blew up the 2008 recession.
The OBR is the latest in this line of straight-jackets that politicians wish to strap themselves into. The policy agonies that will it bring with it mean that the OBR will remain a controversial body for years to come.
