In late February, the Office for National Statistics decided to classify the Treasury’s raid on the Bank of England’s accumulated interest payments from quantitative easing as a receipt for the public sector.
You can have a long and reasonable argument on whether the raid, euphemistically called a “cash management operation”, is a good idea. But I argued a few days later that the treatment of an internal public sector transfer of money as government revenue in the headline figures was a poor decision by the Office for National Statistics. There was no world in which the underlying public finances had been improved by the move, I argued.
As a journalist I was appalled that Britain’s independent statistical authority was setting out a legalistic argument for an economic question and for a set of statistics that were not governed by international conventions. I felt the statistics for borrowing and debt could not be trusted any more.
As a member of the public, I wrote to the chairman of the UK Statistical Authority, the statistics watchdog, to ask for a review of the ONS decision (email reproduced below). Today, I received a reply from Andrew Dilnot, the UKSA chairman (also reproduced). I am delighted to say the UKSA thinks I raised important points and has set up a short review. Read more
George Osborne chose to ditch straight-talking about the public finances in the Autumn Statement on Wednesday and replace it with fiddling with numbers. I think all of the figures he used in his statement were true — there were no lies — but to coin the motto of accountants, many figures were not fair.
True without always being fair used to be the watchword of Gordon Brown as chancellor, so Ed Balls, shadow chancellor, has little to complain about. Those of us who did complain about Mr Brown’s use of comparisons therefore have a responsibility to be fair and moan about Mr Osborne too. Here are five elements of his speech yesterday which annoyed me because they failed the true and fair test. Read more
Yesterday, I included the Treasury chart below showing that the potential level of output is 13 per cent lower than that assumed by the same organisation in March 2008.
But the chart has been troubling me overnight because it is comparing apples with pears. The calculation methodology of GDP has changed since the 2008 Budget in a way which would have made the 2008 trend higher. Read more
Worrying things happening in the eurozone today, but Britain still posted 0.5 per cent growth in the third quarter. Relief rather than reassurance is the right response.
Relief is apt both because the City and government officials thought the figure would be 0.3 per cent. But before anyone goes away thinking that third quarter growth is close to Britain’s 0.6 per cent post-War average, they need to take account of five areas for concern about these figures. Read more
Things go from bad to worse for the UK economy. Perhaps the least reported, but most important aspect of last week’s national accounts revisions is the apparent difference between the pre and post crisis trend growth rate.
Because the Office for National Statistics improved (lowered) its calculation of inflation in the national accounts without changing nominal gross domestic product much, growth rates in most years were significantly revised higher. The average annual rate of growth between 1997 and 2008 rose from 2.9 per cent to 3.2 per cent. But the ONS also said the recession was deeper and sharper than before, revising down post 2008 levels of output even with the more generous inflation measure. Read more
There is inevitably a focus on forecast revisions when any official body produces new predictions about the future. Today the Office for Budget Responsibility, Britain’s new fiscal watchdog, raised the 2010 growth forecast to 1.8 per cent and dropped the 2011 forecast from 2.3 per cent to 2.1 per cent, as the FT reported in recent days.
Robert Chote, the OBR’s new chair, also gave his endorsement to the deficit reduction plan, saying the government had a greater than 50:50 chance of wiping out the hole in the public finances within five years. All of this was incredibly easy to predict.
The interesting decisions taken by the OBR were on its estimate of the fiscal multiplier and its view of the degree of spare capacity in the economy. The first matters because it determines the official view of the effect of budget consolidation on growth. The latter matters because the degree of spare capacity determines the OBR’s view of the size of the hole in the public finances, but has the annoying problem of being impossible to measure. On these two issues, Mr Chote is gung-ho on the multipliers, but displays wise caution on sounding too certain about spare capacity. Read more
Today’s public finances figures show net borrowing roughly on track to reach the Budget forecast for the deficit in 2010-11, as the chart shows.
This should be good news as persistent slippage on the public finances has stopped and the very early evidence shows the consolidation is roughly on track.
But because of the dotty way the Treasury and Office for Budget Responsibility have looked at the public finances in the past, this is not good enough. In fact, on plausible assumptions, we need another £5bn of tax rises or spending cuts a year to meet the fiscal mandate of eliminating the current “structural” budget deficit within five years.
Why is good news actually bad in the weird world of government forecasting?
In a nutshell because Read more
George Osborne won immediate plaudits for the early establishment of the Office for Budget Responsibility to take the politics out of government economic forecasts. The hyperbole that surrounded the announcement was overdone, but the new OBR should increase trust in government forecasts and underpin UK sovereign debt markets if its performance in practice meets its promise. Monday marks its first test.
Sir Alan Budd, OBR chairman, needs to move from the easy task of reveling in the OBR’s establishment to the more difficult task of building long-term credibility for the new body and demonstrating it has not been captured by the Treasury in its short life.
Note that Monday’s announcement is a new economic and public finance forecast, based on unchanged policies. It will not include the OBR’s assessment of whether the government’s tax and spending plans give ministers a 50:50 chance of meeting their own ambitions for the public finances.
If the Office meets or exceeds the following basic requirements on Monday, it will have got off to a good start.
- Clarity on forecast changes
The OBR must make it absolutely clear why forecasts for the economy and growth are different from those in the March 2010 Budget. This means deconstructing forecast differences into changes in assumptions and new information received. Any merging of the two would be a disaster for transparency. The forecasting changes for growth must flow clearly into forecasting changes in tax revenues and public spending on items linked to the health of the economy such as social security.
- Publish its assumptions on the link between growth and the public finances
The Treasury has been keen to speak privately over the past year or two about how it decoupled its growth forecasts from its public finance forecasts. Sensible though this was as ammunition for the Treasury in the fight between Gordon Brown and Alistair Darling, it was no way to run a government or a forecast.