The shambles of Budd’s departure has called into question the independence of Osborne’s Office for Budget Responsibility

Larry Elliott
guardian.co.uk, Tuesday 6 July 2010

George Osborne has been busy since he arrived at the Treasury. He has presented an emergency budget, he has announced a £6bn package of spending cuts, he has abolished the Financial Services Authority, and he has set up the Office for Budget Responsibility to scrutinise the government’s books. The chancellor’s two-month honeymoon came to an end today with the news that the OBR’s interim head, Sir Alan Budd, would be stepping down at the end of the month.

That’s not the way the Treasury sees it, naturally. Sir Alan only had a three-month contract and had always made it clear that he would not be sticking around once Osborne had delivered his debut budget. Although the expectation in Whitehall had been that Budd would remain in place until a permanent chairman was appointed, there was, a Treasury spokesman said, nothing untoward about his departure.

This explanation, it has to be said, does not entirely ring true. At 72, Budd has had a long and distinguished career in public service. He has been chief economist at the Treasury, he was one of the founder members of the Bank of England’s monetary policy committee, and he has run an Oxford college. Osborne would have wanted such a highly respected figure to remain in place until the OBR had been put on a permanent statutory footing, and Budd – however much he might have yearned for the quiet life at his home in Devon – is the sort of person who would see it as his duty to help the chancellor out. Hector Sants, the chief executive of the FSA, was prevailed upon by Osborne to rescind his resignation and help orchestrate the shake-up of financial regulation; Budd would have done the same.

So the suspicion is that Budd is going quickly for another reason – namely, that his independence has been called into question by the shambolic way in which Osborne’s team handled the story, based on a Treasury leak, that the measures in the budget would cost 1.3m jobs across the public and private sectors. The Treasury, to put it mildly, was not best pleased by this story and vowed to “trash” it when it broke in the Guardian last Tuesday, on the eve of David Cameron’s appearance at prime minister’s questions.

The OBR had planned to release its own assessment of the impact of Osborne’s budget measures on the Thursday, which would have been too late for Cameron in his weekly sparring match with Harriet Harman. Fortunately for the prime minister, the OBR’s report – containing the heroic assumption that job losses from the budget would be dwarfed by the creation of 2m new jobs over the next five years – was brought forward by 24 hours. The Treasury said that this was Budd’s attempt to “make a contribution to the debate” rather than a crude attempt to spare Cameron embarrassment. Again, this explanation strains credulity.

But even if it was true, it would still raise doubts about the OBR’s credibility. Bodies that want to be seen as independent do not take actions that – even on the most benign interpretation – could be construed as politically driven. Predictably, the OBR came under a lot of unflattering scrutiny.

Osborne has only himself to blame. The chancellor made great play of how the OBR would prevent politicians fiddling the figures to make budget sums add up: this only works, though, if the organisation is not just squeaky clean but is seen to be squeaky clean. The OBR was meant to be Osborne’s answer to Gordon Brown’s decision – in the first week of the 1997 Labour government – to grant the Bank of England operational independence over interest rates.

Both moves were intended to provide a clean break with the past and show that the new team had radical, reforming instincts. Like the monetary policy committee, the OBR has been welcomed by economists, who think it makes fiscal policy more transparent. There, though, the comparison ends. Albeit working in a more favourable economic climate, the monetary policy committee quickly established its independence. Geographically, it was parked at the other end of town from the Treasury. It quickly set up a group of nine eminent economists to make decisions. And it raised interest rates at four of its first six meetings. There have been times when both Brown and Alistair Darling privately fumed at the bank, but they were careful to avoid treading on the toes of Threadneedle Street.

By contrast, the OBR is currently a three-person committee serviced by macroeconomists seconded by the Treasury. It is physically situated in the Treasury. The Treasury handles all press inquiries. After the shenanigans of last week, these together provide the strong impression that the OBR has been set up to give the new government cover for the most draconian public spending cuts since the war.

That cover now looks a bit threadbare. It is not just that the OBR’s growth and employment forecasts look implausibly strong. It is that its independence has been called into question and will remain in question until it has its own staff, is removed from the Treasury, and reports to parliament rather than the chancellor. Osborne – agree with his politics or not – has made a confident start, but this was a blunder. Far from trashing the story, he has trashed his own creation.