Business

Headline Numbers: Right policies with wrong figures?

Graph showing actual GDP growth compared with OBR predictions

Evidence-based policymaking is all the rage at the moment, and rightly so. The question is, can evidence-based policymaking be a good idea if the evidence is wrong?

Next week, the chancellor will deliver his last Budget before the General Election. One of the main areas of interest will be the forecasts from the independent Office for Budget Responsibility (OBR), the creation of which was one of the great innovations of this government.

We have to assume that the chancellor's decisions will to some extent be guided by the OBR's forecasts.

The trouble is that in line with most forecasts, most of the time, the OBR tends to be wrong.

Indeed, if you compare its first set of forecasts from 2010 with what actually happened (in the graph above) they are dramatically inaccurate. Is that a problem? George Osborne has certainly had to change his plans since 2010 as it emerged that the economy was not recovering in the way that the OBR had predicted.

But this is not just a problem with Budgets. Take the 2012 Olympics. When decisions were being taken about whether to bid to host the games, the costs were anywhere between about £2.5bn and £3.8bn, but the games ended up costing closer to £9bn. Did that make the decision to bid wrong or was it, as I heard somebody who was a senior civil servant at the time say, ok because everybody knew that the early costings were wrong?

HS2 is another project that has seen dramatic changes in its costings and its potential benefits over the years it has been planned and once you look into the methodology behind the numbers there are pretty big assumptions made.

Is it possible to make evidence-based policy in these areas, when the evidence is such high risk.

At this point I should salute the OBR, which goes to great lengths to stress the risks and uncertainties surrounding its forecasts. And you have to feel their pain, because forecasting economic indicators is a mug's game.

But under those circumstances, is it possible that actually there is less evidence-based policymaking going on than we think, and more of politicians choosing what they believe to be the best path, given that the evidence is probably wrong?

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