Appointment of Robert Chote as Chair of the Office for Budget Responsibility - Treasury Contents


Robert Chote: Response to Treasury Committee questionnaire

A.  PERSONAL AND PROFESSIONAL BACKGROUND

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?

  Yes.

4.  Please explain how your experience to date has equipped you to fulfil your responsibilities as Chairman of the OBR.

  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 to 1994.

  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)

B.  ACCOUNTABILITY

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 job, namely:

    — 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 ACTIVITIES

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.

D.  PERFORMANCE OF THE ROLE

9.  What will be your priorities as Chair of the OBR?

  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 flexibility—primarily 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.





 
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