George Osborne is aware that he will rapidly become unpopular as the frontman for the Con-Lib coalition’s efforts to bring down Britain’s £163bn budget deficit.
But in his first significant announcement as chancellor, he is on Monday seeking an altogether grander place in history. He sees the creation of an Office for Budget Responsibility as marking a revolution in British economic policymaking. Brutal cuts in public spending will come later.
“The first thing I have done as chancellor is to give up the power, something chancellors have had for hundreds of years, to make forecasts,” he told the Financial Times.
Decisions on the growth forecast, the numbers for public borrowing and an estimate of the government’s future liabilities will be made by the new OBR.
Mr Osborne blames Gordon Brown and Alistair Darling for the need to take this step. “They fixed the figures to fit the Budget, when they should have fixed the Budget to fit the figures. Forecasts were fiddled in order to help the government to present the sort of Budget it wanted to present.
“I take a different view which is that you should start with the facts on the ground – the realities about revenues and debt – and then deliver a Budget that is appropriate to those truths.”
Before the emergency Budget to be held by the end of June, the OBR, initially to be chaired by Sir Alan Budd, formerly chief economic adviser to the Treasury, will issue a new forecast for economic growth and public borrowing, which will frame the Budget and set the course for public spending cuts and tax increases.
Will the books show the public finances to be much worse? Mr Osborne slips into what will become a new mantra. “I am not going to make a forecast. That’s the whole point.”
But he provides a hint that the growth forecast for 2011 will be revised lower, insisting that 30 independent forecasts all point to lower growth than the Treasury. The economists also predict borrowing will be £15bn worse in 2011-12 than the March Budget estimates – but Mr Osborne declined to comment.
The OBR will consist of a committee of three. Alongside Sir Alan, two other officials are already poring over the Treasury’s books. Those in the know say they will not be household names: one is a recently departed Treasury official, the other an economist.
Their job will be to determine whether the forecasts are, as Mr Osborne stated at the time of the March Budget, “a work of fiction”. He says their efforts will prevent “the temptation for the chancellor of the day to fiddle the growth forecast a little and therefore massage the borrowing figures”.
He says: “The best thing to do with temptation is to take it out of reach.”
His certainty over the benefits of the OBR raises the question of how bad the Treasury’s forecasting record has really been. Its own public assessment, produced every autumn but under political direction, is that the record is not too shabby. However, Treasury officials privately recognise that after 2001 the organisation had a persistent tendency to be over-optimistic on public borrowing.
The OBR’s job will be to determine whether the Treasury has similarly pushed the credibility of its estimates of the future, as most independent forecasters believe.
The new government does not yet know how large the OBR should be, whether the committee should work as auditors of Treasury economists or have its own large team of forecasters, whether it will usually announce its forecasts in advance of the Budget or on the day itself, and how it will go about costing the last-minute tax policies that chancellors and governments find hard to resist.
These important details, Treasury aides say, will be determined by the OBR’s operations before the emergency Budget. So, while undoubtedly a big idea, Mr Osborne’s legacy to policy-making still remains to be tested in practice.