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Bias claims undermine OBR 'independence'

By Channel 4 News

Updated on 09 July 2010

As the Office for Budgetary Responsibility's independence is questioned for revising down a job loss forecast, Channel 4 News economics producer Neil MacDonald says the row was inevitable in the present economic climate.

Sir Alan Budd, who is stepping down as head of the Office of Budgetary Responsibility (Reuters)

The credibility of the newly formed Office for Budget Responsibility (OBR) is under question after it was revealed it had revised a calculation for public sector job losses ahead of Chancellor George Osborne's emergency budget last month.

Last-minute revisions ahead of the budget on 22 June saw the OBR trim its forecast for public sector job losses for 2014-15 by 175,000, to 490,000, with a total of 600,000 for the following year, according to a Financial Times report.

The reduced estimate is based on an assumption that the government will be able to employ more civil servants for a given amount of money by cutting pension contributions and promoting them more slowly.

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

That assumption effectively pre-empts the findings of the Pensions Commission, headed by former Labour minister John Hutton, and suggests the possibility of political involvement in the OBR's operations.

A spokesman for the prime minister, David Cameron, defended the OBR. "The most important point is that this is the OBR's forecast," he said.

"In the context of their forecast, they are making some assumptions, and that is a matter for them."

'The OBR and the Bank of England are very different beasts'
The row over the independence of the Office for Budget Responsibility was perhaps inevitable, writes Channel 4 News economics producer Neil MacDonald.

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.

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But shadow chancellor Alistair Darling suggested the statistical revision threw the OBR's credibility into question.

"There were already serious questions about the independence of the Office of Budget Responsibility," Mr Darling said. "Now its very credibility is at stake."

The OBR was set up shortly after the general election with the aim of stopping accusations that official forecasts were being massaged to benefit the government of the day.

Blogging shortly after the formation of the coalition government, Channel 4 News Economics Correspondent Faisal Islam wrote: "George Osborne is to be congratulated for, as one of his first acts as chancellor, eschewing the right to author government forecasts."

Sir AlanBudd at the OBR
- Download a copy of his terms and conditions

Today's FT article follows the announcement on Monday that Sir Alan Budd, the OBR's interim chairman, would be stepping downwhen his initial three-month contract expires.

Although his contract specifies that Sir Alan "will continue for a period of 3 months, subject to earlier termination (…) or to extension by agreement in writing between you and the Department", the fact that his contract will not be renewed has surprised some observers.

It was assumed he would remain with the OBR at least until publication of the government spending review on 22 October.

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