Keeping official fiscal forecasts honest

Creating a new independent body to forecast the public finances could help keep the interest rates at which the government is able to borrow low, Robert Chote, the Director of the Institute for Fiscal Studies, will argue in the Scottish Economic Society / Royal Bank of Scotland Annual Lecture in Edinburgh this evening. But such a body would need to be willing and able to resist political pressure at a time when fiscal policy is likely to be unusually controversial and fiscal forecasting unusually difficult.

There are a number of ways in which the fiscal forecasting process could be made more independent. The Conservatives have proposed an Office of Budget Responsibility (OBR) and the Government is likely to move at least some way in this direction in its promised Fiscal Responsibility Act. The most likely model for the OBR may be the creation of a new independent body to forecast the public finances in parallel with the Treasury. A cheaper, but perhaps less convincing, option would to make civil servants rather than the Chancellor responsible for Treasury forecasts, as in New Zealand.