We have some cause to be grateful to Robert Chote, Chairman of the Office for Budget Responsibility (and what an awesome title that is!) How could we have managed without such a lofty personage in the past? Being responsible to MPs was not enough, Chancellor George Osborne decided in 2010, and created the OBR. The thought in the Osborne mind was that if there was an outside body, made up of expert, non-partisan economists, it would add to the authority of his Budget process. So the OBR has come into existence, suitably staffed, suitably sited and suitably salaried. But for all its grand title, it would not assume one iota of serious responsibility for government policy. It would serve as a commenting and forecasting organisation. And it would examine its own predictions to see where it got it right and where it went wrong - 100 pages of explanation. For all its expertise the body has turned out to be no more accurate in its forecasts than the crystal ball gazers in the City whose predictions can be obtained at no cost whatever. In short, the OBR’s expertise was no better than anyone else’s, indeed rather worse.
It seems a shame so many experts gathered for so little purpose. Mind you, this group acknowledged from the outset that forecasting was a very difficult business. There were so many imponderables, like what happened in the rest of the world. It commented: "In each EFO (Economic and Fiscal Forecast) we stress the un certainty that lies around all such forecasts…we highlight uncertainties about how the public finances will evolve even if one were to know with confidence how the economy was going to behave."
Many would agree. But that calls in question the value of forecasts, even accurate ones when they occasionally occur in the five year period for which the OBR makes predictions. Running commentaries are alright – though hardly in short supply at any time - but if they extend into medium term forecasts the scope for error, indeed the certainty of it, makes the whole exercise curiously rash. More so since a political time table becomes involved. Which policies and which costs will gather in the votes, they wonder. Nigel Lawson evolved what he called the Medium Term Financial Strategy in the 1980s thinking he was imposing a discipline on his own and other departments. It was, to use the familiar phrase about Whitehall planning, duly ‘blown off course’.
We are grateful to Chote for warning us - if that is the right word - that if it the government makes the cuts it proposes we shall see a return to the 1930s. This is a valuable reminder to the many people who have been carried away by the Left’s mythology about the 1930s, supposed a period of alarming national poverty. Once we had discarded the gold standard - roughly speaking fixed exchange rates – the governments of the 1930s went on to manage on (by today’s standards) remarkably limited budgets. Even at the end of that decade with defence costs soaring, only one in five of the employed paid income tax with a top rate of 29pc. Just a very few rich qualified for the surtax bracket where there was an extra penalty bringing the rate to 41pc. The average family man paid no income tax.
But in those days, it has been argued, there was a limited welfare state and no National Health Service, though free or cheap hospital services were available. Very well, let us look at the another period where the ‘danger’ of low government spending certainly did involve the NHS – the period of 1957/58. Harold Macmillan went on to win the 1959 election having uttered the phrase about British voters never having had it so good. Evidently the voters thought he was right.
What Chote is reminding us is that the cost of government does not need to be high. We merely choose that it should be. It is a ‘luxury’ alongside the standard of living we have come to expect: huge sales of new cars, mobile phones for all, furiously competitive supermarkets, low air fares and all the other appurtenances of a prosperous country – and all provided by the private sector. Chote warns us that we are spending too much on these things. We are running down savings. This is hardly surprising with banks paying such low interest. Whether Osborne’s cuts will be achievable without real pain in some quarters may be open to question. But with a welfare state which provides benefits even to those who obviously do not need them, cuts are obtainable. Governmment, central and local, does not need such heavy taxpayer funding. Politicians may think they need them for vote catching purposes but not the people they are supposed to represent.
What the OBR has also succeded in doing – though not its original intention – is to cast doubt on the value of forecasting as an activity. The purpose of forecasting is to keep forecasters happy. Mankind has always liked to think that the future is knowable. Hence the ambiguities of Delphi, among other things. It certainly kept the priestesses well. They did not know but they liked to sound as if they did. Some things do not change. The OBR’s comments may render forecasting pointless. But its predictions are still heeded as once were the flights of birds and the internal organs of selected animals.
One Roman naval commander took them very seriously indeed. The flagship carried the sacred chickens whose keepers would bring them out when the commander wanted to know his prospects. If they ate the scattered grain then the auguries were good. On an occasion he was enraged by their indifference to their food, having been stuffed with a large meal by their priests/keepers. He flung them overboard with the cry that if they would not eat at least they would drink and went into battle. He lost. Which at least said something for their keepers reckoning of the strategic odds. If the keepers of the sacred chickens today prove as shrewd as their Roman predecessors, we will all be surprised.