Monday, May 17, 2010
An Office of Budget Responsibility and a June 22 budget
Posted by David Smith at 12:30 PM
Category: Thoughts and responses


Before the election, there was a debate amopmng specialists about how much power the Conservatives' Office of Budget Responsibility would have. Would it merely monitor and comment on the Treasury's growth and fiscal forecasts or would it do those forecasts itself? In the event, the new chancellor George Osborne has gone for the latter, which is at the bolder end of the spectrum.

Sir Alan Budd (above), the interim head of the new OBR, will take responsibility for the forecasts and for setting out the fiscal challenge the new chancellor and David Laws, his Liberal Democrat Treasury chief secretary, will have to meet. It is radical, though we should remember that Sir Alan is a former Treasury chief economic adviser and that he will have to draw on the Treasury model and its forecasting expertise in producing his numbers.

My sense is that Treasury officials were not leaned on to produce over-optimistic forecasts in the run-up to the election - their 178 billion public borrowing projection for 2009-10 was 15 billion too high. They also worked hard to produce a big figure for the "structural" deficit. Anyway, we'll see what the new approach brings. Too gloomy and it could scare the markets.

Less clever are proposals to bring the private finance initiative and unfunded public sector pension liabilities into a transparent "national balance sheet". Every country has unfunded pension liabilities and in many cases they are very considerably larger than in the UK. The danger is that UK government debt is made to look worse than it is. International comparability is the key here.

Details of 6 billion of "in-year" spending cuts will be announced next Monday. The first "emergency" budget will be on June 22. George Osborne's speech is here.