Select Committee report demonstrates need for reform

Everyone agrees the Office for Budget Responsibility (OBR) needs not only to be independent, but also be seen to be independent of government. Otherwise it fails the credibility test. The Treasury Select Committee has therefore concluded the only way of giving it that degree of independence is to make it a non-Ministerial department.

The problem with non-Ministerial departments

Our report Read Before Burning makes clear the real lack of transparency associated with non-Ministerial departments. Many departments treat them more like Executive Agencies. As one non-Ministerial department head memorably said, "the first thing you need to know about being a non-Ministerial department is that you have a minister and you are not a proper department". The factor behind the Committee's recommendation to make the OBR a non-ministerial department was the need for it to have its own Estimate – rather than get its money direct from the Treasury. However, as non-Ministerial departments agree their funding with the Treasury through their parent department (in the OBR's case, the Treasury!) all this does is blur the picture.

The need for a clearer system

The answer, as recommended in our report and our evidence to the Treasury Select Committee (PDF, 98KB) is a new, clearer system for determining the governance of arm’s length bodies. We propose four broad categories, determined by the degree of independence the body needs from Ministers to function credibly. The OBR is a prime candidate to be what we call an 'Independent Public Interest Body', protected against interference by Ministers by having a direct relationship with Parliament as well as with the department. Since this category does not exist, the Committee's report spells out at great length what the government needs to do to guarantee the OBR's independence. The Treasury has already conceded one point, by giving the Select Committee a right of veto over the Chair's appointment. Outgoing OBR Chair Sir Alan Budd thought that we had hit on the right way of treating the OBR. In evidence to the Select Committee in July , he said:

"... [the IfG] suggests that there should be a category called an independent public interest body with not total independence but a fair degree of independence, one from the top in terms of independence, and that would seem rather a good model and rather a good category for the OBR to fit into... I thought that was a very neat way of categorising bodies and rather a good place to put the OBR."

The Treasury Select Committee was boxed into a corner. It chose the least worst option from the current system. But the struggle to find the right form for the OBR underlines the urgent need for a better system.