This briefing investigates who the Office for Budget Responsibility are and what they do. It also discusses the Government's fiscal targets, which are included in the Charter for Budget Responsibility.
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The Office for Budget Responsibility
The Office for Budget Responsibility (OBR) was established within days of the Coalition Government coming to power in May 2010 with the aim of improving the credibility of fiscal policy.
The body was initially established on an interim basis with Sir Alan Budd as chair. Robert Chote, a former director of the Institute for Fiscal Studies, has been chair of the OBR since October 2010. His second term will end in autumn 2020 and the Chancellor has announced Richard Hughes as his preferred replacement. Mr Hughes previously held senior roles at the Treasury and IMF and is currently a Research Associate at the Resolution Foundation, a think-tank. The Treasury Committee has the power of veto over this appointment.
The Budget Responsibility and National Audit Act 2011 provides for the establishment of the OBR, and sets out its functions and broad governance structure.
The OBR’s role
Part of the OBR’s role, as laid out in the Charter for Budget Responsibility (the Charter), is to produce forecasts for the economy and the public finances. These are produced independently of the Government. In the past, the Treasury’s forecasts have been based on the Chancellor’s judgement. This has led to the suspicion that forecasts may be over-optimistic. It is hoped that any perception that the forecasts could be politically motivated is removed by an independent body producing them.
The OBR also comments on whether the Government’s policies have a better than 50:50 chance of meeting the Chancellor’s targets for the public finances – or ‘fiscal rules’ – which are set out in the Charter. The OBR also examines the long-term sustainability of the public finances, risks surrounding the public finances, spending on welfare and devolved taxes.
The Charter for Budget Responsibility
The Charter for Budget Responsibility (the Charter) sets out the OBR’s role, how it performs its duties and the required content of its key publications. The Charter also sets out the Government’s basic policy for managing the public finances (its fiscal framework) including what should be in Budget reports, the policy for debt management and how debt management should operate. The fiscal framework also sets out the Government’s targets for the public finances, which are often referred to as its fiscal rules.
The Charter has been changed on several occasions since its introduction in 2011. The latest version was proposed alongside Autumn Statement 2016 and came into force on Tuesday 24 January 2017 when the House of Commons approved it.
The Government’s fiscal rules
The Government’s fiscal rules guide and constrain how it manages its finances.
At Spring Budget 2020, the OBR judged the Government’s performance against two sets of fiscal rules – the official rules, as set out in the Charter, and a set of rules proposed in the 2019 Conservative manifesto.
The Chancellor is reviewing the Government’s fiscal framework, including the fiscal rules, ahead of Autumn Budget 2020. Following the review, the Chancellor will decide whether he wants the rules in the Conservative manifesto to become the official rules. For the rules to become official they need to be included in a revised Charter that is then approved by the House of Commons.
The manifesto sets out three fiscal rules. These concern government investment spending, government debt interest and balancing the current budget. The OBR judged, in its Spring Budget 2020 forecast, that the Government was meeting these rules.
Reviews of the OBR
Both an external review and a Treasury review reported positively on the OBR. Both have praised the OBR’s credibility and reputation, and the integrity brought to the fiscal forecasts. Both reviews made recommendations for the future of the OBR, including the need to undertake succession planning for key and long-serving members of staff. The Treasury review recommended the changes currently being made to the OBR’s role.