Are there more economic decisions that should be taken out of ministers' hands?

Published on 2 September 2015

With the Bank of England setting interest rates and the Office for Budgetary Responsibility providing forecasts to help guide the public finances, Paul Johnson in The Times asks if there are other areas where independent bodies could improve economic governance by restraining the role of politicians.

This article first appeared in The Times newspaper on Tuesday 1 September 2015 and is republished here with permission.

Democracies work best when the remit of politicians is reined in. The separation of the judiciary from the executive and legislative arms of government is a long-established principle. And in economic policy, too, politicians have begun to realise the value of limiting their own powers.

The decision of the New Labour government in 1997 to give the Bank of England the power to set interest rates free of ministerial interference has proved one of its most enduring and effective legacies. It is no coincidence that this was its first policy innovation. It tied its own hands before it had a chance to get used to using and abusing the power to set monetary policy itself for its own political advantage.

Similarly, the creation of the independent Office for Budgetary Responsibility was one of the first acts of the 2010 coalition government. Unlike the Bank, the OBR doesn’t pull any policy levers, but it does ensure that there are credible independent forecasts to help to guide the public finances. Gone are the days when tax and spending decisions could be taken based on forecasts fixed to suit the needs of the government of the day.

That the Bank has not got all its decisions right or that the OBR already has a chequered record regarding the accuracy of its forecasts, are almost neither here nor there. The point isn’t that these institutions are infallible, it is that they are credible, independent and honest.

They are also, particularly in the OBR’s case, vastly more transparent than the Treasury. Data, methods and models that were routinely withheld by the Treasury are now in the public domain. The default position of the Treasury is opacity. The OBR’s default is transparency.

This difference in behaviour doesn’t come from the individuals involved — most of the OBR’s staff continue to be recruited from the Treasury. It results instead from a different institutional set-up, and in particular the role of ministers. With a small number of honourable exceptions, ministers tend to see transparency as a threat.

All of which raises the question: are there more decisions that should be taken out of ministerial hands? With the Treasury reviewing its remit, should we be building on the success of the OBR by asking it to do more?

One possible extension would be to ask it to “cost” opposition policies in the run-up to an election. This would be a much bigger change than its proponents acknowledge. It would require long negotiations between opposition parties and the OBR as well as altering fundamentally how manifestos are compiled and the way in which the OBR, and probably the wider civil service, works. The equivalent process in the Netherlands can take getting on for a year. That route should only be embarked upon here after a long, open, national debate. It might change the way politics works for the better. It would certainly change it significantly.

There are perhaps two more pressing areas where economic governance might be improved by constraining the role of politicians. The first is in decisions over infrastructure. We all know that the quality of our roads, housing, airports and energy is crucial to our future wellbeing. We also know that the political process is not fit for purpose when it comes to making coherent decisions — witness the interminable dispute over airport expansion in the southeast. Whatever the right option, failure to reach any decision for decades is the wrong outcome.

This perfectly encapsulates why the most authoritative look at growth policies in recent decades — the LSE’s commission on growth — had as its central recommendation an infrastructure commission, independent of government.

The second priority should be to build on the OBR’s work in improving transparency. Useful, consistent information on departmental spending is absurdly hard to come by — harder in fact than it was in times past.

The lack of external access to Whitehall data is a scandal that undermines the quality of policymaking and the accountability of ministers. This won’t change until an independent body is given the power to improve transparency, without ministerial interference.

We all sometimes serve our own best interests by committing now to do something that constrains our future options: we buy a year’s gym memership, we don’t keep those chocolates in the cupboard or we don’t put all our money in instant access accounts. Ministers need to get better at recognising when they should do the same in the national interest.