Robert Chote: Response to Treasury Committee
A. PERSONAL AND
1. Do you have any business or financial connections
or other commitments which might give rise to a conflict of interest
in carrying out your duties as Chairman of the OBR?
I am a member of the Finance Committee of the
University of Cambridge, a Governor of the National Institute
of Economic and Social Research (NIESR) and a member of the Policy
and Advisory Board of the Oxford Institute for Economic policy
(Oxonia). All are unpaid and involve only modest time commitments.
I do not believe they involve conflicts of interest with my prospective
role at the OBR.
2. Have you ever held any post or undertaken
any activity that might cast doubt on your political impartiality?
Not since I was involved in student politics,
more than 20 years ago.
3. Do you intend to serve out the full term
for which you have been appointed?
4. Please explain how your experience to date
has equipped you to fulfil your responsibilities as Chairman of
I have been Director of the Institute for Fiscal
Studies since 2002, having previously served as an Adviser/Speechwriter
to the First Deputy Managing Director of the International Monetary
Fund from 1999 to 2002, Economics Editor of the Financial Times
from 1995 to 1999 and an economics and business writer on the
Independent and Independent on Sunday from 1990
Core functions: As Director of the IFS, I have
led work on the production of short- and medium-term fiscal forecasts,
and longer-term projections of key fiscal aggregates (see Q5),
and analysis of the impact of tax and welfare measures, including
their cost or revenue raised. All will be key parts of the OBR's
role. As an economic journalist I spent 10 years analysing UK
economic and fiscal data and assessing their implications for
the outlook for the economy and the public finances.
Independence: Under my directorship the IFS
has been widely recognised for its independence from political
parties and other vested interests, offering rigorous and well-founded
analysis of economic policy developments and proposals. Despite
criticising claims and proposals from leading figures in all the
main political parties from time to time, I have managed to maintain
effective working relationships with policymakers and would-be
policymakers across the political spectrum.
Communication: The IFS is recognised as an exemplar
of effective communication in economic policy issues. I undertake
a great deal of this communication activity myself, but have also
ensured that the necessary skills are encouraged and developed
widely through the organisation.
Leadership: The IFS employs around 50 people
and has a turnover of around £4.5 million a year. Directing
it involves both strategic leadership and day-to-day management.
I have built a cohesive team, melding academic and non-academic
staff, full-timers and part-timers, UK and non-UK citizens. I
have attempted to combine effective line management of staff with
a flexible organisational structure that allows people to build
up a rewarding mix of project work across the organisation. I
am also practised at managing complex relationships beyond our
staff, for example with trustees, funders, collaborators, ministers,
advisers, officials and other interested parties.
5. What direct experience do you have of carrying
out fiscal forecasting?
During my eight years at the IFS I have been
a co-author of the public finance forecasts on each annual IFS
Green Budget. Reflecting the comparative advantage of the
IFS, we base our fiscal forecasts on the most recent macroeconomic
forecast from the Treasury and on scenarios prepared specially
for the Green Budget by our private sector collaborators (most
recently Barclays Wealth & Barclays Capital, and before them
Morgan Stanley). The explicit aim is therefore to assess whether
the Treasury's fiscal forecasts are consistent with their macroeconomic
forecasts and to discuss the potential the impact of alternative
macroeconomic scenarios. The methodology we use is described here:
http://www.ifs.org.uk/budgets/gb2010/10apps.pdf and in C Giles
and J Hall, "Forecasting the PSBR outside government: the
IFS perspective", Fiscal Studies, 1998, 19, 83-100.
Broadly speaking, we adopt two approaches to revenue forecasting:
one based on direct comparison of part-year receipts information
with the previous year (adjusting for known factors affecting
the timing of revenue flows) and one based on estimates of the
elasticity of revenue with respect to changes in the relevant
tax base. These elasticities are derived from the IFS tax and
benefit model, from other IFS research or from estimates published
in the economic literature. In common with all forecasters, we
apply judgement on top of the output of models and for short term
forecasts we report the pre- and post-judgement estimates separately.
In forecasting expenditure, we forecast some components of Annually
Managed Expenditure directly (eg debt interest), but assume that
the Government delivers on its Departmental Expenditure Limit
plans. In addition to fiscal outturns under different scenarios,
we show the probability distribution around the base case forecast
implied by past forecasting errors in the form of a fan-chart,
a technique that has been adopted by the interim OBR. And in addition
to forecasts over the usual five-year horizon, we produce longer-term
illustrative public sector debt profiles so as to focus on the
impact of current policy settings and potential future spending
pressures on long-term fiscal sustainability.
6. Which of your publications or papers are
of most relevance to your future work on the OBR?
The chapters on the fiscal framework, the past
performance of the public finances, and public finance forecasts
and Budget judgements in successive annual IFS Green Budgets from
2003 to 2010. These are available here: http://www.ifs.org.uk/budgets,
as are "morning after" analyses of Budgets and Pre-Budget
Reports over the same period.
Analysis of the fiscal consolidation plans of
the three main parties (http://www.ifs.org.uk/publications/4848)
and of the performance of the public finances between 1997 and
2010 (http://www.ifs.org.uk/publications/4822) prepared to inform
debate during the 2010 General Election campaign.
I discussed the potential role and structure
of the OBR in my 2009 Scottish Economic Society Annual Lecture
(http://www.ifs.org.uk/publications/4658) and in Chapter 11 of
the 2010 Green Budget (http://www.ifs.org.uk/budgets/gb2010/10chap11.pdf)
7. If you were to make yourself available
for reappointment to the OBR at the end of your term, what criteria
should be used to assess your individual record as OBR Chair?
I would expect to be judged primarily against
the responsibilities set out by the Treasury in advertising the
Achieving the objectives of the OBR:
These objectives will include producing the official economic
and fiscal forecasts and assessing the long-term sustainability
of the public finances.
Communicating the OBR's decisions: the
Chair of the OBR and the BRC members will be responsible for communicating
to the Government, Parliament and the country the OBR's judgements
on the economic and fiscal outlook.
Providing strong and visible leadership
of the OBR: the Chair of the OBR will be responsible for ensuring
the OBR is managed efficiently and effectively and is successfully
established at the heart of the UK's macroeconomic policy framework.
In all this, I would expect to be judged against
the priority I have set out in answer to Q9, namely "to establish
and maintain public confidence in the OBR as a source of analytically
rigorous, empirically sound and effectively communicated medium
and long-term analysis of the public finances". Securing
the reality and the perception of the OBR's independence is central
to achieving this.
C. OTHER PROFESSIONAL
8. What other professional activities do you
expect to continue / undertake in addition to your position on
the OBR and how do you intend reconciling these activities with
your position as OBR Chair?
I might undertake occasional written journalism
and speaking engagements in addition to those directly required
by my OBR role, but would ensure that such activities were not
on topics or occasions that would compromise the independence
or impartiality of the OBR.
9. What will be your priorities as Chair of
If appointed, my overarching priority will be
to establish and maintain public confidence in the OBR as a source
of analytically rigorous, empirically sound and effectively communicated
medium and long-term analysis of the public finances. This will
provide a solid basis upon which the Government can take its tax
and spending decisions and will give the public the information
it needs to judge the Government's commitment to its fiscal objectives
and to the broader goal of long-term fiscal sustainability. In
all this I would ensure that the OBR is seen as independent and
unbiased, yet that it works closely and effectively with officials
in the Treasury, HMRC, DWP and elsewhere.
I would make transparency the guiding principle
of the OBR's work, as this is the surest way to demonstrate the
quality and impartiality of its analysis on an ongoing basis.
This means explaining rigorously, and comprehensibly, why we reach
the judgements that we do. It also means being honest about the
considerable uncertainty that will lie around many of those judgements.
Just as important as setting out a central view of the outlook
for the economy and the public finances is to explain how things
might turn out differently and what impact this might have on
long-term fiscal sustainability and the achievement of the Government's
medium term goals.
To that end, in our macroeconomic forecasting
work I am keen to explore whether and how we can complement the
depiction of uncertainty through fan charts with discussion of
scenarios that highlight different ways in which the economy could
evolve, as these could have very different implications for the
fiscal outlook. This would also draw attention to the fact that
the so-called "consensus" independent forecast (to which
official forecasts are often compared) is in fact an average masking
often very different views of a wide variety of parameters, such
as potential output, domestic demand, global conditions and the
behaviour of asset and financial markets.
In the preparation and presentation of medium-term
fiscal forecasts, I would hope to draw upon different macroeconomic
scenarios and also to undertake more sensitivity analysis, for
example looking at how debt and deficit paths would evolve under
different assumptions about gilt yields.
In analysis of longer-term fiscal sustainability
issues, I am keen to build on the approach in the Treasury's Long
Term Public Finance Report and to pursue the next steps identified
in the interim OBR's Pre-Budget Forecast document (for example
drawing upon the work underway at the ONS and NIESR on generational
accounts). In addition to taking an overview of the implications
of long-term revenue and spending projections, it would be desirable
to set out a long-term work programme on particular long-term
fiscal issues on which the OBR might wish to collaborate with
or commission work from outside experts (eg ageing, migration,
health costs and international capital mobility). I will also
be keen the take advantage of the new transparency resulting from
the publication of Whole of Government Accounts and forthcoming
ONS work on the public sector balance sheet.
In our manner of working, I would make it a
priority to establish the OBR as an organisation that enthusiastically
engages with and draws upon outside expertise in its areas of
interest. This could be done in a number of ways: through a permanent
advisory board or panel, through regular consultation with outside
forecasters (following the model of the Bank of England's monetary
roundtables), through secondments and short-term contracts, and
perhaps through a collaborative exercise in encouraging relevant
academic research with the Economic and Social Research Council.
10. The future structure of the OBR is still
to be determined by Parliament. Are you prepared to Chair the
OBR regardless of what form it ultimately takes?
Within reason. I would be perfectly content
for the OBR to be either a Non Ministerial Department (NMD) or
a Non Departmental Public Body (NDPB). As I understand it, an
NMD would have somewhat greater formal independence from the Treasury,
but at perhaps significant cost in terms of administrative and
financial flexibilityprimarily reflecting the fact that
the OBR is much smaller than most NMDs. I would not want the OBR
to be merely an Office or agency of the Treasury.