Welcome to the Treasury Committee on Wednesday 15 July 2026. This is our second session today, and we are meeting Jonathan Haskel to discuss his nomination as the prospective chair of the Office for Budget Responsibility. The last chair of the Office for Budget Responsibility, Richard Hughes, resigned just before Christmas. It has taken a while to get the recruitment through in the Treasury. Jonathan Haskel is our sole witness, because it is about his position. We do appreciate, Professor Haskel, that you filled out our questionnaire at pace—normally, we would have given you a little bit more time. We do appreciate your being flexible, because we wanted—as did you, the OBR and the Treasury—to try to get this appointment sorted, one way or another, as soon as possible before the summer. Thank you very much for doing that. On the questionnaire, I am pretty sure that you have filled it in yourself, because we have had those conversations with you, but can you just confirm that for the record?

Yes, I confirm that I did.

And did you seek any advice on any answers to any of the questions?

No, but I got some back-up advice on some extra reading to do around some of the niceties about accounting for water.

Okay. And did you then send a copy of the questionnaire to anyone else after you had filled it out, or did you send it just to us?

I sent a copy to everybody. That includes the Treasury contact, and Adam, who is over there, and one other person who is—

So members of our team and the Treasury?

Yes, indeed.

And did anyone try to suggest that you put different answers to the questions?

No.

We just like to make sure of that, as part of your independence. Heading up the OBR is a big job, especially in these circumstances when there is no current chair. There is not a long lead-in time. You highlighted in your questionnaire that your first priority is to emphasise that the OBR is there to help, not to hurt. That kind of begs a bit of a question: do you think that the OBR is being helpful now?

Yes, I do. Thank you all for seeing me and thank you, Chair, for welcoming me. To step back for a moment, the reason why I am interested in this job is that I am a believer in independent economic institutions. I have had the privilege of working for the Bank of England; I do not think anybody thinks that we should get rid of the independent Bank of England and have it all decided by politicians. Likewise, when it comes to the Competition and Markets Authority, I do not think anybody thinks that we should decide mergers according to the whims of whoever happens to be sitting as the Secretary of State for Business and Trade, or whatever. We also do not want to go back to a situation in which Chancellors essentially mark their own homework. I therefore think that the OBR is indeed there to help, and I think it is being helpful. If I had the opportunity to carry that forward, I would be delighted.

There has been quite a lot of political buffeting around this, with various politicians of different colours critical of the OBR, especially at the time of a Budget, moaning—sorry, not moaning, but raising concerns, sometimes through anonymous briefings—that things had been scored in a way that they did not like. That relationship can therefore be quite confrontational between Parliament and Government. If you were appointed to this post, how would you manage that relationship, not just with the bits of Government that you would have a formal relationship with, but with the wider political environment?

My main interpretation of the tension there, and all the chat in the papers and so forth, is that the fact of the matter is that the UK is not in a very good fiscal position. I wish it were better. We started 30 years ago with a much lower debt-to-GDP ratio, and we have had a series of adverse shocks, be it the financial crisis, covid or the war in Ukraine. Therefore, my first view is that you are right; there has been lots of hue and cry around the role of the OBR, but fundamentally that reflects the difficult fiscal circumstances in which we find ourselves. All that said, the OBR of course has to be accountable, and it has to fulfil, as I understand it, its statutory duties to be objective, impartial and transparent—I believe those are the words used in the statutory objectives. You are absolutely right that the OBR, and indeed any other independent economic institution, has to be held to account. So I understand a lot of the fuss around all of that, but, as I say, my primary view on why this has all become so salient is about that fiscal background.

We will come on to some of the detail about the technical scoring of things, because that can have an impact on what people say. One of the elements of this job is that, while you already have a public profile to some degree, when you are chair of the OBR—if we agree to that today—you can get a lot of flak in the media. Do you have any experience of dealing with that? Do you think you have the personal resilience to cope with suddenly being in the headlines and being attacked?

That is a good question. First of all, part of my ambition, were you to confirm me, would be not to be in the headlines or in the media. Let’s be clear about that; it is for the politicians to be in the media and explain—

Do you think that is that realistic? If you look at your predecessors, they were quite high-profile. If they raised their eyebrows, they would get newspaper headlines.

I accept that; again I would go back to the fact that because of the difficult fiscal circumstances the country finds itself in, this job is necessarily high-profile. However, to answer your question, I am a little bit accustomed to that from being on the MPC. I dissented a fair amount while on the MPC; some people liked it and many people did not. I hope that I am not a complete novice. I am sure I have lots to learn about dealing with the media, but I would say that I have had at least a little bit of experience, on that basis.

I suppose, Professor Haskel, the issue here is that you have worked for the CMA—a body that I have some experience of—and now the MPC, and you are now appearing before this Committee, but this role is to a different order. What happens with the OBR is not really just a discussion with The Economist and the Financial Times. You are sat there on a Saturday morning, having your croissant or your bacon butty, and there are people briefing against you. How would you react to that? Are you prepared for that?

We don’t have many bacon butties in Golders Green, but leaving that small point aside, yours is a serious question, Mr Grady. I shouldn’t have been so flippant; I apologise.

No, I should apologise.

Not at all. Look, I think that is all part of the course. As I say, I had a bit of experience on the MPC. Some people get very upset about these various decisions and would write to me, or lobby me, or whatever it might be, so I hope I would be able to cope with that. Most of all, I am sure that I have got lots to learn about dealing with the press in the right way and being resilient. But as I say, I hope I do not come at this from a completely naive point of view.

In your questionnaire, you were asked about the breadth of the OBR’s current responsibilities and you said that you would “keep the OBR’s breadth of duties where they are now and continue to prioritise the OBR’s interaction with Parliament in general, and maintain the first-rate skill in the organisation and commitment to purpose.” That sounds like you are a continuity candidate, rather than a change candidate, for this role. Is that a fair summary?

Yes. I think I am reacting, Chair, to the discussion that has been in front of this Committee about what the breadth of the OBR’s job should be. I will make a couple of points about that, if I may. One is that the OBR is a pretty lean organisation and it has had more responsibilities, and its resources have expanded in proportion to that. But I would want to be careful—again, hypothetically, were I confirmed—not to have too expansive a role without the resources that come with it. That is thought No. 1. Thought No.2 is something that you have discussed a lot in this Committee, which I think is very interesting: the issue that in some countries—I think Australia is an example—the equivalent of the OBR costs the plans of opposition political parties around the time of elections. I have to say that that strikes me as being not a good idea, given the current resources. A big increase in resources would be necessary. Also, you have discussed this in this Committee, but I think there would be some tricky constitutional issues about the extent to which the civil service would have to work with people who are not in Government, and all that kind of thing.

I think that in your questionnaire you are quite clear about that.

In that case, I apologise for repeating myself. But that is where I was leaning when I was writing that answer.

No, it is important for us to get it on the record, too. But in your questionnaire you are very clear about the challenges of how you would even assess those manifestos. Thank you for that. Obviously, the reason why the previous chair of the OBR resigned was the release of the economic and fiscal outlook ahead of the Budget. It is early days, and I don’t know whether you have had any conversations with people at the OBR, but you are quite focused in your questionnaire about the need to deal with that. Do you have any concerns that there might be any wider issues? Have you had any hints that there are bigger issues there? Is there anything you want to say about that?

I have had a bit of contact with them and I have asked them about this. But let me step back, if I may, and say how I think about it. It seems to me that this is under the general heading of cyber-security, of which the premature access to the Budget documents is one small part. Cyber-security is surely a challenge for absolutely every organisation. I mean, it must be a challenge, if I may say so, for Parliament, for this Committee and so forth. That is how I think about it. There are two levels to this. One level is—I do not know whether these are the right words—a kind of a basic hygiene level, to make absolutely sure, given the expertise of the National Cyber Security Centre and so forth, that every organisation is adhering to that basic hygiene. I have had a few conversations with the OBR on this, but only a few. From reading some of the public information following that early-access episode, my understanding is that they have done lots of work in that area, they have had a lot of good people advising them and so forth. That is my first thought. Could I expand on that just for a minute?

Please do.

At the risk of giving you a slightly long answer. I think about the OBR as, essentially, an information-rich producer. That is what it is doing: it is not producing ingots of steel, ships, aeroplanes and cars and so forth, but it is producing information. So digital security is a first-order item on the risk ratio. Getting to the basic hygiene is step one, it seems to me. As I say, my sense is that there has been lots of work. The question is whether the organisation wants to move a step up. What I have in mind involves a little bit of my Imperial College experience. Look at the way—I am sure you have heard evidence of this—in which the science community and other communities have integrated Claude, Codex, OpenAI and ChatGPT into their workflows. That is a fantastic way of improving productivity—especially, as I say, in my college—but using those frontier computer programmes needs a frontier level of cyber-security. If the OBR were to go in that direction, which would be really worth looking at, that would take a second step. I am less sure that the OBR has made that second step. The answer to your question is checking on the first, which I am pretty confident about, but then taking a decision early on about whether to make that second step.

So you are going in with an inquiring mind to ask the question.

Indeed.

Having heard witnesses over the last couple of days, I think lots of people are doing that; thank you. I have a couple of last housekeeping questions before I move on to Julie Minns MP. Were you approached by the Government or any political or civil service source to apply for this role?

No. I saw the advertisement, as everybody else did.

Fantastic. In the questionnaire, we asked whether you had ever held any posts or undertaken any activity that might cast doubt on your political impartiality. You said no. Have you ever been or are you now a member of any political party?

I think when I was 20, I was a member of the Putney Labour party.

Was that for very long?

I think I stopped when I went to university.

Thank you very much indeed. I call Julie Minns.

Good afternoon, Professor Haskel. We have touched on your background, which differs from those of previous chairs of the OBR. You acknowledged in your questionnaire response that you have less independent experience of fiscal forecasting. Will having two former MPC economists on the Office for Budget Responsibility committee leave the public finance side de-emphasised?

That is a good question. Richard Hughes was supremely well qualified on that side, but he had a team of really good people around him. Again, my sense from talking a little bit to the OBR is that not only is Tom Josephs, who has appeared many times in front of this Committee, absolutely fantastic, but there is a group of public finance people—it is quite a specialist area—who are involved in all that. I think I would find myself having to learn loads on that side because I think you ask a fair question: it is less my comparative advantage.

As we have touched on, this is a public-facing role, and the complexities of this area are not always easily understood. Particularly given your academic background, how will you approach explaining forecasts to the public?

As you know, I do a lot of teaching. I teach a master’s in business. When I was at the Bank of England, I made a priority of visiting schools. I hope I have an ability to explain economics in an easily accessible way—I have bored some of you while I have been on the MPC while attempting to explain why I voted this way or that. It is for you to judge, but I would hope that I could bring some of that experience to the table. You ask a good question. Communicating billions and billions is often pretty hard, actually. The “Financial risks and sustainability” report, which came out a couple of weeks ago—I had nothing to do with it—was an absolutely fantastic piece of work. They did a very good job of getting people to understand what is behind all that. But doing that communication about large numbers is something that I would like to spend some time thinking about.

Talking of numbers, the Committee has taken a close interest in the problems at the Office for National Statistics. You have been working with the ONS on inflation data. Do you have confidence in ONS data, which the OBR will of course depend on?

I do. Again, I may be at risk of giving a slightly long answer, so shut me up if this goes too far. I should also declare that I was on the UK Statistics Authority board for a number of years. Roughly speaking, at a very high level, I think the ONS was very successful in its data collection exercises over covid—I do not want to say that it was a success over covid, because covid was not a success in any sense. However, from a data collection point of view, data on public health was, unfortunately, not fit for purpose before the outbreak. We then needed it urgently for the outbreak, and the ONS really stepped up. My diagnosis at a high level is that it then essentially became a victim of its own success. After covid, it was asked to do more and more, especially on the health side, and I think it just ended up doing too much and was just a bit too thinly spread. I think the ONS is now heading in a much better direction. It has had to slim down the activities it does, but I think that is the right step—that is as a result of the Devereux review, as you know. It has appointed some new people, most notably James Benford, who used to be at the Bank of England. I do not know whether he has appeared in front of you, but he made another statement this morning about the ONS concentrating its various efforts, so it is definitely headed in the right direction. That is one set of things. If I can say one more set of things, I have had the honour of chairing the ONS’s inflation advisory board. The collection of the inflation numbers is an area where the ONS is doing a really good job, and that is something that other areas of the ONS could learn from. You will know that, as of March, it brought in all the scanner data—you know, from when you and I scan our stuff at the supermarket. That is tens of millions of observations, and it is all held in the cloud and processed on Python, using the latest techniques. It is all open source, and new people who come to the organisation can see what is going on and so forth. If the ONS can continue in the same direction, concentrate its efforts and continue to learn from best practice within the organisation, I think it can get to a much better place.

Can I press you slightly on that? It is heading in the right direction and making improvements, but I am sensing that it is not quite there yet. You are going to have to depend on the data you get, so what will you do to ensure that it is as robust as you need it to be?

To be clear, the reason it is not there yet—no organisation is there yet—is that this is a rapidly moving target. New technology is coming; AI is coming. Even if you have settled how to count mobile phones, pretty soon you will have some new, wondrous piece of technology in outer space, or something like that, that you will have to count. That is part of the reason. Part of this is about working in partnership with the ONS. There is a rich ecosystem, which is generally supportive, and that includes the Bank. The other part of it is that having come, hopefully, with a bit of an understanding about what is going on, I will be able to be a critical friend—to be able to take what the ONS produces and say, “I like the look of this, but, as I remember correctly, something went wrong with that. Could we just iterate about that?” I think that those kinds of conversations with the ONS are very fruitful.

Dame Meg touched on the public-facing role and the pressures that come with that. Thinking about an organisation like the OBR and its complexity, what have you gained from your previous roles—your leadership roles in academia and elsewhere—that has given you the experience needed to lead an organisation of this size and importance?

That is a fair question. The academic projects I have been involved in have not been me sitting in a room by myself with a pencil for five years; they have been co-operative projects—often with the ONS, actually. I have worked on international projects funded by the EU, for example, to bring together comparable data—as you know, there is a whole issue about the levels of productivity and all of that, which I have worked on. Those kinds of projects have involved the co-ordination of lots of different people with lots of different objectives and so forth. I am sure that I have loads to learn on all of that, but I hope that I can bring a little bit of experience on that to the table.

I want to talk about the independence of the OBR. Over the last four years, we have had the September 2022 mini Budget, where the OBR was shut out, and we had the early resignation of its chair last year. How would you assess the state of independence of the OBR at the minute?

With the mini Budget, it was tested somewhat to destruction, if you see what I mean. From an economics point of view—I will not go into the politics—it was a difficult occasion. However, as I understand it, certainly from a constitutional point of view, it left the OBR having its position reinforced, with the fiscal lock and so forth, which has been made in legislation from last year. I wish that it had not occurred, but it has helped with the OBR’s independence. That is one set of observations from a purely constitutional point of view. The other point of view—I mentioned this a little bit in my questionnaire—is from the last reviewer of the OBR, Laura van Geest, who I think gave evidence in front of this Committee a while ago. She made an interesting point in her review that one way to undermine a seemingly independent institution would be to starve it of resources. She therefore recommended that the OBR’s resources should be on a rolling budget point of view and so forth, and there has been that change, as I understand it. Going back to the earlier question, I am not close enough to the organisation to understand exactly how the three-year window works and when the negotiations start and so forth, but that is a helpful part of the OBR’s independence as well.

Let us suppose for a moment that the Chancellor down the line during your term is less friendly than I am and says, “I’m going to cut your resources.” What would you do?

The first thing that I would want to do is go and talk to the Treasury about it, as I understand that the funding arrangement is to do that. Ultimately, I would not want this to happen, but my understanding is that I could come to this Committee and say, “I am very sorry, but in my opinion, we’ve been given this number of tasks to do, but we’ve been given that amount of funding and we can’t do them.”

Can you reassure me, therefore, that if there is something that you think is inappropriate—for example, pressure to change a forecast that you and your team are rock solid behind, or starving you of resources or some other set of events that makes you uncomfortable—you would actively seek to come before this Committee?

Completely. That is the nuclear option—unfortunate military metaphors are now coming to mind. One does not want to use that, but that step would have to be taken were the situation to become insupportable.

The OBR has limited resources, as you have set out, and you are dependent on HMRC and DWP for tax modelling. We have had a reasonable amount of evidence that there might be a little bit of overdependence going on there. Do you share that concern, Professor Haskel?

I am just trying to write this down. Again, I have not got my feet under the table, so I am relying on the evidence that has been brought to you and some brief conversations with the OBR. It is a lean organisation, and it has taken a conscious decision—this is from reading the minutes to you—not to duplicate everything that is done elsewhere. Almost as a matter of operations, Mr Grady, I think it has to be the case that they rely on HMRC and so forth, and I think there is some tension in all of that. Equally, my experience of being on the Bank of England was that there were some fiscal issues around insurance taxes, petroleum revenue tax and things like that—tax things that are so complicated that, in the end, only a small number of people really know how they operate, so I do not see a problem in relying on them. Of course, one has to use one's own judgment and so forth in doing all of that but, unless one wants to literally duplicate the whole organisation, that will just have to be the operational outcome.

Professor Haskel, as the Chair was indicating earlier, the Committee thinks it is extraordinary that we are at the end of July and this post has been vacant since last October—

December.

Was it? Okay. You saw the advertisement, I guess, when it was published in February and you put your name in the hat. From your perspective as one of the candidates—the candidate who succeeded—what was slowing that process down?

Dame Harriett, I do not want to appear evasive, but to be honest, I think that is a question for the Treasury. I was just the recipient of the process, if you see what I mean.

Yes, and I am asking for your perceptions as the recipient of the process. You have obviously applied for other jobs in your life. What was it that seemed particularly slow about this one?

I made a note of the dates, because I thought this might come up, and I am happy to go on the record. My understanding is that the applications closed at the end of March. I had an interview on 8 May, and then the offer was made on 19 June—in other words, a while ago. There was the end of March, April and May, so it maybe took a couple of months to arrange the interview, with busy people to empanel interview panels and so on.

Were you interviewed by Ministers?

No—well, I had an initial interview at the Treasury. Am I allowed to say who it was with?

It was with a panel of civil servants.

Yes, a panel of civil servants and one outside expert. I have met two Ministers in the past few weeks and that has been it.

Was it pressure on their diary? The Minister who appeared in front of us said that there was a lot going on in the world. Do you think there was pressure on their diary?

Certainly, when I met the two Ministers, you can imagine how, at the end of our time, there were people knocking on the door and so on. I cannot imagine how busy these Ministers’ diaries are.

So it was scheduled.

I got the strong sense there was a lot of pressure on people’s time, yes.

Thank you. Now—

And I do not want to be evasive about who I met and so forth.

No, no.

It is the bit before you even answered the advert that concerns us, which, as you highlight, is really a matter for the Treasury.

Apologies for interrupting.

One of the things that interests me in what you have said in the past year in Parliament is: “I think the Employment Rights Bill will subtract from growth. It is bad for intangible investment. Given the weak situation that firms are in, I just do not think we should be going ahead with it.” We have gone ahead with it. Could you talk through what you think the impacts will be, and have you done any economic work on analysing the impacts?

Thank you for asking the question and for taking an interest in what I have been saying. The type of work that I have done is to look at intangible investment across different countries. You will have heard this a lot from various witnesses, but intangible investment is knowledge investment, R&D, software—those kinds of things.

Jobs?

Which will then lead to jobs. Think of it as technology investment and so on—the kinds of things that modern economies do. It is sort of a signal of cutting-edge investment that economies are making. If you compare across different countries, you are then into the difficult business of identifying what is going on in different countries. For that, most studies rely on various OECD indices. The OECD do many, so you know that they will have an index of, broadly speaking, labour market regulation, product market regulation and all sorts of other indices. The index of labour market regulation—I must make sure that I get this the right way around—shows that more regulation is correlated with less intangible investment. That is the raw correlation in the data. Of course, all this is very noisy. What is difficult about all this is the index of employment regulation is itself an amalgam of a load of sub-indices, including a sub-index on hire and fire, a sub-index on collective dismissals, and a sub-index on individual dismissals and notice periods. Forgive me for this long answer, but I am trying to get to your question. If you want to know what is going on with the Employment Rights Bill—

Act.

Act—sorry, it has been passed now. I beg your pardon. If you want to know what the economic consequences will be, you need to know what is going to happen to all the individual bits, so you can then work out what is going to happen to the sub-indices in the OECD index. You can then work out what is going to happen to the overall index and then you can work out what is going to happen to intangible investment. My understanding is that many of those individual bits are out for consultation, so we do not quite know yet what the actual outcome is going to be. What I was trying to talk about was the broad finding, which is, broadly speaking, that there does seem to be an adverse correlation between those types of measures and intangible investment.

The word “Act” is important, because when we asked the previous Chair of the Office for Budget Responsibility whether they had scored the impact of the Employment Rights Act in their analysis and their forecast, they said, “No, because it’s not yet an Act.” It is now an Act. Are you going to stand by your words that it will subtract from growth, and it is just a question of how much each of those elements that you have just spoken about so eloquently in economist-speak impact on growth? I believe the Office for Budget Responsibility has a rule of thumb that if it is going to have a negative impact of more than 0.1%, it should be scored. Would you stand by that?

I would stand by that, but the devil is in the detail, as I say. Unless I have missed something, a number of these provisions are out for consultation—for example, the length of dismissal and the access to sick pay; I am wavering here because I do not know exactly what is out for consultation and what is not, but the devil is in the detail with all of that.

This is really important, because the Office for Budget Responsibility says, “We don’t score anything that has a positive or negative impact of less than 0.1%.” I would not want you to say, “Each of these individual measures out for consultation doesn’t quite get above 0.1%”—

Oh, I see what you are getting at. I beg your pardon.

If in aggregate, the Employment Rights Act measures subtract half a per cent from growth, that would be pretty material. I would not want you to drill down into such detail that none of the measures went above the 0.1% threshold.

I completely get that; apologies for going into the weeds about all of this, but I think if one is going to form a conclusion—especially with the 0.1% threshold, which one can argue about—one has to get into the weeds a little bit. I would stand by that piece of evidence. It is one piece of evidence, of course, and if other people have other pieces of evidence that show different ways or an even bigger way, that is fine. I quite like cross-country work. I think it is quite helpful, because often there is quite significant variation across countries in the types of employment relations—contrast France to here, for example. Of course, there are all sorts of other things going on, and one should take other bits of evidence in the round and so forth. I am not backing up from that piece of evidence, but one needs to consider this as part of the overall package.

You stand by your statement that the Employment Rights Act will have a negative impact on growth. That is what you said on the record; I am literally quoting from your record.

In a broad sense, yes.

And you are not proposing as the incoming Chair of the Office for Budget Responsibility, if we approve you today, to change that parameter of 0.1%. You are not going to try to say, “Actually, let’s make it 0.5% or 1% before we score legislation.”

No. My thinking on this is a bit rough, but let me try this thought. The OBR’s growth forecast is about 1.4%. The scoring is 0.1% on the level over five years; 1.4% over five years is about 7%, and 0.1% of 7% is about one seventieth. I do not think that is a very big hurdle, if you see what I mean, to decide to score one way or the other, so I was not thinking about changing that level of scoring.

And you will score these measures as they are consulted on, or you will score the measures in aggregate with that five-year horizon in mind.

Yes, completely. I think that is the right method.

In your extensive experience and analysis, in terms of the Employment Rights Act subtracting from growth, which is your starting point, is it your expectation that the aggregate of all the measures will be considerably more than 0.1% or more than 0.1%?

I really do not know. Again, I do not want to appear unwilling, but as I have said, the devil is in the detail. It depends what the outcome is of the consultation on all these various different indices, because if one then takes it to the overall index, that is the right way to compute what the effect on growth might be.

But you must have done some work on this before you made a statement that decisive to Parliament: “I think the Employment Rights Bill will subtract from growth. It is bad for intangible investment.” From an economist, that is pretty black and white, it seems to me.

That was my reading of what would then happen, given all those various sub-measures, but when presented with what actually the sub-measures are going to be—one would have to be careful and go back and see what they were.

You will be putting this through a model that the OBR have, so will you be looking at the models that the OBR is using, given your expertise in this area?

Yes. I am assuming the OBR has lots of different ways of judging these things. You have heard from witnesses, and we talked earlier, about tax affairs. It is often a judge with respect to HMRC and so forth. Regulation is judged with respect to whatever the baseline is and so forth. Whatever the other types of mechanisms that the OBR wants to bring to the table—this is but one. I think some work has been done on it and I am happy to bring in other bits of work as well.

We are going into the modelling later.

When you were going through the interview process, did anyone—an official or a Minister—ask you about your views on the Employment Rights Act?

No, it was mostly broader questions on the type of leadership things we have discussed, the cyber-security issues, my aspirations—I pointed to my aspirations for where I would want to lead the OBR—independence and things like that.

Thank you, Chair. I am sure that if Professor Haskel is appointed, we will continue this line of questioning.

Following on this theme, Bobby Dean MP.

I was going to say yes and no, but that is a terrible answer, isn’t it?

Let me try to meet you halfway. I think it goes back to the earlier discussion. The additional scrutiny and additional salience of the OBR is because the fiscal position is so difficult. Were we in an easier position, it would be much less salient. That is the background. I think a couple of things. I think that if the OBR is not communicating the way it scores supply-side policies and not communicating how it thinks about the tax issues and regulation issues we were just discussing, it is quite legitimate for people to say, “Hold on a moment. The OBR is throwing a bit of sand in the wheels of this whole process, because if I, as a Government Minister or civil servant, want to try to push through some kind of measure, it’s all a bit of a black box as to how it scores it.” If that were the case, I would agree with you that it is throwing sand in the wheels, if I can use that analogy. But what I quite like about a lot of the work the OBR has done is that it has attempted to clarify much more about how it comes to these types of decisions. For example, I talked in the questionnaire, which you will have seen, about the consultation that the OBR did on the effect of public investment in roads and rail and all that kind of thing. That greatly opened up to outsiders how it would go around scoring these kinds of decisions. So the reason I said yes and no is that I think it has got ahead of the pack by having that very successful consultation. Possibly it could do more on that side, but as I say, I think that is a model for stopping the notion that somehow the OBR is holding up the whole process.

I think that is a fair set of criticisms. Let me react to them. The first thing is that the Government can do what it wants to do. I think there have been occasions when the current Chancellor has said, “You know what? The OBR has forecasted x for productivity; we’re going to beat it.” That is perfectly okay. If the Government decide they have a policy and they want to get on with it, that is perfectly all right. That is thought No. 1. If we are going to move away from the situation of the Government marking its own homework to having some sort of arbitration, we have to move to some sort of bar being set on that, if you see what I mean, but as I said, it is the Government’s decision. Secondly, I do think there is something very difficult about the long-run and the short-run issues. My immediate reaction is that if the Government—any Government of any political complexion—have a good long-run scheme, they should definitely go ahead with it. Where that takes you is whether the OBR, or indeed any other forecasting organisation, should be getting into doing longer-run forecasts, which again I think is something that has come in front of this Committee. I looked at the Congressional Budget Office yesterday, and I know you had Doug Elmendorf in front of your Committee, who I should say I have also been in contact with and has very kindly offered his help and so forth. I know Doug was pushing very hard for a 10-year forecast. With all due respect to the CBO, if you look at its 10-year GDP forecast, it is a wiggly line for the first five years, and for five years after that it is a straight line. I could be being completely unfair to them, but that was my reading of it—let’s be clear for the minutes.

It is fair to say that we have heard evidence that it is harder to predict the further out you go.

The trouble with moving to a 10-year forecast is that you are inevitably going to have to make some straight-line assumptions at that point. I am a little uneasy about doing that. I hear you, Mr Dean, about the possibility that if the Government have a long-run project, they might have a disincentive to do it, but I think they should go ahead.

Completely fine. Honestly, I am completely fine about that. My understanding of the legislation is that the OBR is tasked with reporting to Parliament on the sustainability of the public finances. It is not told how to do that, but the words used—let me try to read them out and make sure I have got them right—are that it comes to its conclusions “objectively, transparently and impartially”. If somebody wants to disagree, that is absolutely fine, it seems to me, but the job of the OBR is to follow that statute and do it in that way.

Completely, because we want to gather the most evidence we possibly can. As I say, as long as the OBR fulfils its statutory responsibilities—that is obviously going to be incredibly important; any chair of the OBR, I am sure, would want that—let’s have as much evidence as we possibly can. If aliens from outer space have good evidence on tax cuts and this, that and the other, that is fine—let’s have it.

That is a good question. Again, I do not want to appear evasive, but I have not got my feet under the desk yet, obviously—

But it sounds to me as if that would be more resource intensive. That would be my guess.

If you are appointed, you will be in front of us plenty, so you will be able to explain your thoughts.

It is the second—it is the different types of investment; apologies for not being clear. The overall figure that the OBR comes up with—the overall elasticity of around 0.1 for public investment—is road, rail and R&D. It is a bit of everything. I think there is something in trying to get a bit more granular than that. For example, some work—full disclosure: it is work that I have done—indicates that the returns of public R&D and the science budget are pretty large. We have a terrific science base in this country. That is what I meant: being a bit more granular in that regard.

Professor Haskel, in your questionnaire response, you state that you regret that the OBR’s assessment of the Government meeting their fiscal rules has “on occasion boiled down to a focus in the media on a single metric in the fiscal forecast, namely headroom.” You also conclude that “the OBR cannot in the end dictate what the media reports.” To what extent do you see it as your responsibility to shape this problem in the media?

I think it fits into the overall comms question, which the Committee has discussed a lot. There is a fixation on headroom, unfortunately. There is a fixation on the Monetary Policy Committee and who is voting against and who is voting for, which detracts from the overall discussion there should be about whether the economy is going in the right direction. Maybe it is something to do with the media, which likes personalities, particular numbers and so forth. I am not sure I have any particularly good answers to all of this, but a more holistic and broader discussion would be really helpful.

I suppose what I am trying to get at is whether you see it as your responsibility to provoke that holistic discussion, or see it as the OBR being left to the whims of the media.

I think it is the OBR’s responsibility to get clever about delivering its conclusions. There were some fantastic graphics with various cohorts in the fiscal risks and sustainability report: if you had been born in 1831, you would have had this path, this GDP per person and that kind of thing. There is a lot of inventive stuff in there that could be really helpful.

Referring back to the fiscal risks and sustainability report that came out last week, you also mentioned that raising the profile of this work will be a challenge. How will you take on that challenge?

Again, it is something the Committee has discussed a lot. I have a few thoughts. First, since there will be one fiscal event per year, there may be more room to discuss longer-term issues in the March economic and fiscal outlook, rather than confining it to one thing. Secondly—this may be a small thing, but I was struck by it—the chief economist of LinkedIn recently gave a fantastic talk to our students at Imperial. She pointed out that people are increasingly posting essays on LinkedIn. LinkedIn has an enormous reach. As she said, it is not designed to post things like Twitter or Substack is. I think the OBR is making some inroads into all of that; I think that might be another way of doing it. Finally, as well as the cohort comparisons, I particularly liked the international comparisons in the FSR. It is very striking to read that the British level of revenue to GDP is this relative to the historical sense and relative to what is going on in other OECD countries. That came over very well. Of course, with comparing things across countries, we are now back into the ONS and index number problems and that kind of thing. We need to get on top of all that. However, I think that is a good medium.

Do you plan to do media rounds after the publication of next July’s fiscal risks and sustainability report?

Oh, for sure. It is a very important report. Like I said, it was nothing to do with me. Hats off to the OBR and its staff. They did a terrific job this time.

There was a discussion, as there is each year, about the OBR’s use of baseline projections, which are very sensitive to assumptions about the uprating of income tax brackets and so on. Of course, the OBR takes what is stated in the law de jure, rather than what actually tends to go on in policy making de facto. How do you see that debate?

I like the scenarios that they have done, and as you know, they have done various estimates comparing it in different ways—so updating with wages or updating with inflation. I was very struck by the fact that, if you do not upgrade the tax thresholds with inflation, in 30 years’ time somebody on the minimum wage will be in the upper rate tax bracket. Doing counterfactual experiments like that is a powerful way of putting across the message.

Can I ask for more of those under your leadership of the OBR?

Absolutely.

Great. I have a couple of questions about your macroeconomic forecasting, bearing in mind your time at the MPC recently. You mentioned in your questionnaire that neither the OBR nor the Bank of England forecasted well the persistent inflationary pressures post-pandemic. What are your learnings from that period and how will you improve the OBR in that respect?

I am tempted to give you a very long answer, but I will give you as short an answer as I can. That was an area where no economic forecasters did a very good job. When I was at the Bank, I worked a lot with my staff and with Professor Blanchard and Professor Bernanke on developing different models to better understand the wage-price spiral effect, which is what was going on with the second-round effects. Again, I think the OBR has been working on that, but I am not close enough to know. Hopefully I can bring a bit of that expertise to the table to help with that kind of thing.

Is that an area in which you think the OBR could improve under your leadership?

I think so. Again, as we were saying earlier on, it is the same with the ONS and the OBR—these are moving targets all the time. We had a shock from the pandemic, which economic modellers had not looked at. We had a shock from gas prices after the Ukraine war, which economic modellers had not looked at. We have AI coming—well, it is already upon us as economic modellers. We have to keep running in order to stay ahead.

Finally, on the flip side, you write in your questionnaire that your opinion is that the “diagnosis of excess supply” in the economy is “uncertain”. You refer to the February Bank of England monetary policy report, which has a small level of slack projected in the economy. Since then, of course, the Bank has come out with more scenarios with much wider slack. Has your opinion shifted?

Not so much actually. Again, forgive me, I will try and give you a short answer, but it is a really important question, which hopefully we will get the chance to discuss. The short answer is that I think that the British labour market was much more damaged over the pandemic than the Bank thinks it was. The broad answer is I think there is less productive capacity for that unfortunate reason than the Bank thinks.

On your previous comment, Professor Haskel, could you expand a bit more on why you think the labour market has been so damaged? What are the limitations in supply?

It goes back to the difficulties around the pandemic: the fall in participation, the increase in disabilities and just the fact that the general supply side deteriorated quite sharply during the pandemic. Roughly, the Bank assumes that the labour market has come back, and I am a bit more doubtful about that.

What is your basis for being more doubtful, given the challenges that we are having with the labour market survey, for example?

Indeed. The relationship between unemployment and vacancies has moved adversely as well. There appears to be more mismatch, and as best as we can figure out, the measures of inactivity appear to have gone up as well. You are absolutely right that the difficulties that the ONS are having on the labour force survey mean that there is much more noise in the process—noise in the judgment—than we would like.

Does that inform your scepticism around whether an expansionary fiscal policy would have a positive economic effect?

Correct, allied with, essentially, the high wage inflation that we have seen, which is higher than the Bank can predict. There are other straws in the wind that indicate there is adversity.

There are 1.25 million NEET young people, for example. Is that something that could help supply, or is that very hard to say?

It could help supply. That is obviously a deeply adverse situation.

I was intrigued by your answer to Bobby Dean MP on the long-term forecast horizon, and whether it is a straight-line assumption on a forecast. As a former financial modeller, I would argue there is not necessarily anything wrong with that, if it has a good basis. Given your expertise, which I was very excited to see, in productivity and R&D you will know far better than me that the pay-off from a lot of public R&D investment could be from, say, eight years on, as with many other Government policies. I would like to understand a bit more your scepticism about a long-term forecast horizon, in terms of giving the Government the benefit of those long-term policies flowing through to economic growth in the numbers.

I think what I was trying to say is that in practice, when one makes these longer-term horizons, when it is often just drawing a straight line, that has to be guided somehow or other. That might be by previous GDP or some constant share of overall GDP, in which case a lot of those forecasts are generated essentially from one forecast, namely the GDP forecast. That is what I was trying to say. You are right, though: for some very long-term movements, such as underlying productivity, drawing a straight line is really not a bad idea. I was over in DC last September, involved in the US Congressional Budget Office’s process for forecasting productivity. Its best fit is basically an average of the last 25 years, with a slightly higher weight on the last 20 years, so it is a slow-moving average in the way you describe. I think that we can do a bit better than that in the current era. I talked about that a little bit in the proposal. We have sectoral information on productivity and we know that some sectors have performed extraordinarily badly. Other sectors, such as mining and quarrying and North sea oil, are extremely volatile, so I think that we can do a bit better than that. With AI coming, I think we also have to be a bit bolder and a bit more speculative about AI.

Do you think that productivity forecasts could be more robust than they are currently? I personally was quite frustrated that a lot of the OBR’s productivity forecasts seem to be based on the idea: “Well, pre-2008 it used to be 2%, therefore at some point it’s got to return.” There was not much more science behind it than that, whereas with Mr Dean MP you were talking about a bottom-up forecast and looking at the different indicators.

Let me give you the same answer I gave to Mr Dean, which is yes and no. I accept some of what you say, but I will push back on some of it. We discussed this a lot in America with the CBO: an independent fiscal institution should set a very high bar to changing its productivity forecast. The reason is that the productivity forecast, as the Committee will know, drives an enormous amount of those very long runs. It goes back to the earlier discussion that we had with Mr Grady about independence. If the institution starts pushing its forecast around too much, if you see what I mean, it is very difficult to know what is going on if it is not transparent about that, so there should be a high bar. The reason I push back slightly is that the OBR, as best I understand it, has changed its productivity forecast quite a few times. I think I have documented that in the discussion.

It has consistently downgraded it, because it found that 2% has not—

It has consistently downgraded it. There I think—and I am going to be a bit critical of the ONS—that if we had not had those profound difficulties around the labour force survey and the hours worked, the economics community in the UK would have been much more confident about an earlier downgrade than it actually was. All those difficulties around the labour force survey put much more noise in the picture, which obscured what then became a downgrade.

Given your expertise in productivity and R&D, what is your view the extent to which the UK stagnation since 2008, or even earlier, has been driven by low levels of public and private R&D investment in the UK versus other G7 economies? How significant a factor is that?

We have spent an enormous amount of public money. We have spent £7.7 billion on the R&D tax credit and £2 billion on the Patent Box—those are the latest HMRC figures. That is an enormous amount of money supporting R&D, so I do not think the source of the problem actually has been excessively low R&D. It is just that, for whatever reason, British industry has not been able to convert that R&D into the type of productivity record that we have seen elsewhere. There are a couple of aspects to that: first, we have obviously had lots of shocks to the economy; secondly, I am afraid to say that the public sector performance has been, on the measured ONS numbers at least, very difficult, which is what I have talked about. As you know, the public sector is now a large share of the economy and, if a large share is not performing as well as it might, that pulls the whole thing down.

Coming back to John Grady’s questions on independence, how did you think about your role as an independent member of the MPC, and how comfortable were you with it? How did you come up with interest rate decisions independently, versus when consulting with other members of the MPC?

Again, I am tempted to give you a very long answer; I do not want to disrespect the question by giving a very short answer, but I will be brief. I tried to listen to everybody else, figure out where the points of agreement were and also be clear where I disagreed. On the question of how I disagreed, it was in two ways. One, I might put slightly more emphasis on other measures than people had chosen: in the labour market, we have lots of different measures—vacancies, unemployment, redundancies and so forth—some of which are leading indicators and some of which are backward indicators, so I would try to argue that. Secondly, I would attempt to explain to people what my economic model is—not just saying, “I disagree with you,” but “I disagree with you because, in my mind, the Phillips curve or this relationship here is a little steeper than that, or there is more responsiveness of this and less of that.” I found that to be, I hope, a productive way of having a conversation with my colleagues around the table.

Continuing on that theme of disagreement, you mentioned earlier that you disagree with the Bank’s view of the labour market. In situations where the OBR and the Bank have quite different assumption about what is driving trends in the UK economy, do the two institutions simply agree to disagree, or does that lead to institutional problems?

I think disagreement is fine, as long as—going back to Mr Coghlan’s question—one can articulate what the source of the disagreement is. We cannot have a situation where there is disagreement where both people are shouting at each other and nobody is listening; but if the situation is that institution A looks at these forward-looking indicators and takes one view and institution B looks at the backward indicators and takes another view, that is fine. If institution A has a more worked-out model with more interactions, more different waves and so forth, that is fine as well. That is when one can have a reasoned discussion about why A disagrees with B. That is the way forward.

Broadly speaking, the post-pandemic performance of the UK has been very disappointing. The performance of the US has been absolutely astonishing, but our work suggests that that is mostly explained by the beginnings of AI, in ways that I am happy to describe. We are then back to the question we were discussing: why is the British economy not benefiting from AI? Again, that is a multivarious question. We have had many more adverse shocks and disturbances: European economies were much more exposed to the Ukraine war shock. It also comes back to the public sector in the UK, as unfortunately, it has underperformed and its high weight has dragged the whole economy down.

I am.

They have been working it in well, but you on this Committee will know how fast it is changing. We are in July now; if we had met in February to talk about the state of AI, we would have reached a completely different conclusion. The latest version of Claude is being written by the previous version of Claude, and enormously more powerful versions are coming out. Some of the work that we have done has indicated on our estimates that quality-adjusted computer rental services are falling at 30% to 40% per year. This is changing literally month by month, so again, you have to run to keep still.

From a private sector point of view, I am quite optimistic. I think the issue—it is both a measurement issue and a management issue—is around the public sector as well, particularly here. Also, if we could just have some stability in the macro outlook, that would help us as well. Right? The shocks that we have had to trade, the shocks that we have had to oil prices and so forth—none of that has helped the general climate of business. As I say, that is moving against us as well.

Yes. Going back to what I was saying before, I am not close to it, but my understanding is that the OBR is using a fair amount of AI in its current work. If it wanted to take the next step and integrate, as I said before, Claude, Codex and that kind of thing, to make it deeply integrated into the workflow, that would require a big step up in the cyber-security environment and so forth. I would be keen to explore that, but I think that for any organisation one would have to move quite carefully and make absolutely sure that the right checks and balances are in place to keep the cyber-security going.

In your questionnaire, Professor Haskel, you say that “expansionary fiscal policy would be inconsistent with bringing down the current inflationary pressures in the economy.” Can we expect that under your leadership the OBR would use lower multipliers for Government spending?

Oh—no, and apologies if that was the answer. I thought that the question was this: what scope is there at the moment for expansionary fiscal policy, given the current inflationary environment, to bring down inflation? I think the answer is no, because we have an inflationary situation and I think we are quite close to capacity.

It is a good job I asked that question then.

Apologies if I got that wrong. The separate question is this: what about the OBR’s multipliers and so forth, were we to have the slack in the economy to justify all of that? Again, I am happy to look in more detail into that, were this to go forward.

Thank you very much. You have expressed today some intriguing and, I think one would probably say, non-standard views on labour markets and spare capacity. Will your views influence the OBR forecasts and the models that they employ?

Part of me says, “I hope not”, in the sense that I hope I am one voice but there are lots of other really good people at the OBR, just as I found on the MPC. If other people take a different view, that is fine, but the job of running the organisation is to make sure that all views are heard and that one has a conversation about it in the constructive way that we have just discussed.

That brings me to a final question about your management style. You are leading an organisation; it is not just managing. And it is very different in many respects from what you have done in academia, much as some of that work was collaborative. How would you describe your leadership style? Imagine you are the team at the OBR, who may be tuning into this—who knows?—and want to know, “What’s he going to be like when he walks through the door the first day?” What is your leadership style?

They are all a fantastic team, by the way.

You have clocked that. You will have got thumbs up from them already. Beyond that, what about you?

I would hope I would be collaborative. I would hope that I would behave as I tried to do on the MPC, but you must seek other opinions from other people on that and not just my judgment. But most of all, because the OBR is a small institution—as we were discussing earlier—it is going to rely upon others, such as HMRC and so forth. Because it is a small institution, it will need everybody to be on board and I think that will need a non-hierarchical way and a very open way of making sure that everybody is involved and everybody feels that they have got a good stake in the organisation.

What if, or perhaps inevitably, you get flak, or the organisation gets flak? How would you, as a leader, deal with that and protect your team?

If it is unjustified, then we go in hard against it and say, “No, no, no. This is the fact. That wasn’t the case.” If it is justified, then we would have to make adjustments.

But you would lead that personally?

That would be the job, yes.

It is very much the job. I thank Professor Jonathan Haskel very much indeed. He is the nominated candidate by the Treasury for the chair of the Office for Budget Responsibility. This Committee has a power of veto over the appointment; if we do not agree the appointment today, Professor Haskel, you have fallen at this hurdle. If we do agree, then you become the chair of the OBR. So, we have that power. We are about to go into private session for a while just to make our decision, and I will come and inform you of it once we have done that, if you want to wait outside. The transcript of this session will be available on the website uncorrected in the next couple of days. Thank you to our colleagues at Hansard, and thank you to Bow Tie for the broadcasting.