The Office of Budget Responsibility faces a big credibility test today. Chris Giles, the FT’s economics editor, has an agenda-setting story that raises doubts over its very purpose and independence. It is far more significant than any speculation over Sir Alan Budd’s departure.
The political result? David Cameron was able to claim in the Commons that his Budget would cost fewer job losses than if Labour had been in power. Cameron was comparing apples and pears.
The OBR predicted that there would be only 30,000 extra public sector jobs lost over the next four years compared to if Labour was in power – 490,000 against 460,000 - despite the coalition’s much deeper spending cuts. This figure would have been vastly higher if the body hadn’t made these last-minute changes to its modelling.
The reasons for the revisions are even more surprising than the end result. Without telling anyone about the changes, the OBR assumed that George Osborne would:
1) Cut state contributions for public sector pensions (an assumption that pre-empts the conclusions of John Hutton’s pension commission)
2) Put the brakes on promotions in the public sector (even though the chancellor has never announced such a policy)
There are three possible explanations: the independent OBR is taking orders from the chancellor; practising economic telepathy; or inserting random policy into its forecasts.
Meanwhile actual coalition policy announcements that would lower long term growth under the original OBR model — such a limiting net-migration to 1990s levels — were excluded. Hmm.
What do you think the OBR is for?