Office for Budget Responsibility criticised after admitting forecast for size of UK economy in 2015 was out by £65bn
The credibility of the Office for Budget Responsibility was attacked by MPs , after the government economics watchdog was forced to admit its previous forecast of the economy's size in 2015 was out by a margin of £65bn. The government's aim of eliminating the structural deficit "by the end of a rolling, five-year forecast period" was also criticised.
Robert Chote, the OBR director, was asked by the Treasury select committee if he thought the fiscal mandate he had been asked to police was wise, and replied that he had been debarred under the OBR's mandate to comment on the target's value.
Chote said: "You are right in saying, having chosen a rolling mandate, the government is moving forward the end point at which they are aiming each year."
Pat McFadden, the former Labour business minister, asked: "The chancellor could, if you like, keep rolling this forward, and this would be consistent with the rule that he's set himself ... Is this fiscal mandate meaningful if the carrot is always five years ahead?"
Chote was also repeatedly challenged to explain the big change in the OBR's forecast of the "output gap", the amount by which the economy could expand without hitting capacity constraints.
The output gap is crucial to determining the forecast size of the structural deficit, and the consequent need for further spending cuts.
McFadden accused the OBR of making massive changes to its forecast, and asked if it had got it so wrong this time, how could it be trusted in the future.
Jesse Norman, a Conservative MP on the committee, said many committee members "were worried about the whole illusion of technocratic expertise surrounding the OBR".
He added: "We are in condition of such uncertainty at the moment there are very high levels of guesswork." The trouble is that there are certain planks of the forecast which are actually theoretically dubious ... There are so many different variables that might affect whether or not the thing exists or how large it is, that it is not just a question of how it is calculated but whether or not there is a genuine piece of economic thought here at all."
Tory MP David Ruffely warned the OBR members that the chancellor's reputation was riding on their accuracy, adding: "You got it horribly wrong last time."
Chote defended himself by saying his task was to provide clarity and transparency.
He added: "All economic policy has to be set up in a forward-looking basis. The fact that it's extremely hard to predict what actual potential GDP is going to be in five years' time is certainly true.
"We've been asked to police a target to a cyclically adjusted measure of the budget balance in five years' time, so we have to reach judgments on those things."
Speaking in a debate on the economy, the chancellor, George Osborne, announced plans to force 15 banks, including foreign-based banks, to reveal the bonuses of the eight highest-paid executives who do not sit on their boards.
He said: "Limiting distribution includes restricting bonuses. Excessive pay in the financial sector is a concern at any time because of the perverse incentives it creates, but when it comes to linking pay to performance and being transparent we are implementing the most comprehensive regime of any financial centre anywhere in the world."
Osborne echoed the calls of the governor of the Bank of England, Mervyn King, for the banks to limit bonuses at a time when the priority is to raise bank capital.
The shadow chancellor, Ed Balls, called on Osborne to enact legislation requiring publication of the bonuses of all bank employees in banks earning more than £1m.