INFLUENCING THE ECONOMIC ELITE
Keith Raffan on the UK’s leading economic think tanks –
the ones UK politicians treat as gospel
The two principal independent economic think tanks in the UK are the National Institute of Economic and Social Research (NIESR) and the Institute for Fiscal Studies (IFS). Neither are ideologically based nor politically aligned, but both could be described as ‘universities without students’, although their research has a much stronger policy focus than that of most academic bodies. They aim to inform, and in so doing influence, ‘the climate of elite opinion’ – in other words political and economic decision-makers – while stimulating and encouraging wider public debate.
THE NATIONAL INSTITUTE OF ECONOMIC AND SOCIAL RESEARCH
The NIESR, Britain’s oldest independent economic research institute (established in 1938), is highly respected for its macroeconomic modelling and forecasting. Its location in the heart of Westminster, virtually next door to the Treasury and the Houses of Parliament, only emphasises its centrality to economic debate in the UK. Broadly speaking, the Institute’s work falls into three categories: economic modelling and macro analysis; the international economy; and education, training and employment.
Since 1995, the NIESR’s Director has been Dr Martin Weale, a former Economics Lecturer and Fellow of Clare College at Cambridge. The Institute’s Council – presided over by Lord Burns, former Permanent Secretary to the Treasury and current Chairman of Abbey plc – boasts among its members such luminaries as Charlie Bean, Deputy Governor of the Bank of England; Professors Tim Besley and Willem H Buiter of the London School of Economics (LSE), both of whom have served on the Bank of England’s Monetary Policy Committee; and Lord Turnbull, a former Cabinet Secretary and Head of the Civil Service. Although the NIESR only offers corporate, as opposed to individual, memberships, the Council does invite distinguished economists to join as Governors, of which there are currently 158.
The NIESR is perhaps best known for its monthly UK GDP estimates, which project the country’s GDP growth for the month ahead and thus allow the Institute to release (highly accurate) quarterly economic growth estimates three weeks before the Office of National Statistics’ official figures. Its regular publications are similarly influential, with subscribers in over 30 countries. Each edition of the quarterly National Institute Economic Review features research based on a specific theme – ‘Work and Well-Being’ in the July 2009 issue, for example – alongside detailed economic forecasts. Meanwhile, recent Discussion Papers, intended to foster the exchange of ideas at an early stage, have included ‘How to Pay for the Crisis, or Macroeconomic implications of pension reform’ and ‘Bank Regulation, Property Prices and Early Warning Systems for Banking Crises in OECD Countries’.
Events held by the NIESR include the technically-minded Stone Lectures, the NIESR Employment Seminar Series and the more general Westminster Economics Forum, which consists of a series of lunchtime seminars – the current topic is ‘Financial Services: UK versus the Rest of the World’, and next on the agenda, somewhat inevitably, is ‘Are policy makers revising financial regulation correctly in the aftermath of the financial crisis?’
But far from merely claiming wisdom in hindsight, the NIESR was in fact well ahead of the curve in predicting recent events. Back in the spring of 2007, while appearing before a Parliamentary Select Committee, the percipient – if not telepathic – Dr Weale questioned whether enough attention was being paid to how regulatory systems would cope in a financial crisis. It is hardly surprising, therefore, that the Institute is now carrying out research for the Financial Services Authority (FSA) on the macroeconomic implications of financial regulation.
Indeed, the global financial and economic crisis has greatly increased interest in the NIESR’s work. Bloomberg now broadcasts, live-to-air, the press conferences at which the Institute presents its forecasts. Dr Weale regularly appears on BBC news and current affairs programmes, including Radio 4’s highly influential Today programme, on which he recently made the bleak prediction of ‘a weak and protracted recovery’ for the UK, with output not expected to return to its January 2008 level until 2013. He also suggested that the British Government consider imitating Germany’s short-term working scheme, which has resulted in unemployment increasing there by only 0.5 per cent, compared to 2 per cent here.
THE INSTITUTE FOR FISCAL STUDIES
Whereas the NIESR is the UK’s principal macroeconomic research institute, the IFS is pre-eminent in the field of microeconomics, specialising as it does in the economic analysis of public policy. Founded in 1969, it has rapidly established itself as the most respected authority on the public finances, becoming, in the words of Gordon Brown, ‘an indispensable British institution’ – though one that has frequently caused him discomfort. The IFS’s remit covers tax and welfare policy; tax law; education; inequality and poverty; pensions; productivity and innovation; consumer behaviour; and the evaluation of development policies in poorer countries.
Though arguably more politically influential than the NIESR, the Institute’s location, near the University of London in Bloomsbury, places it closer to academia. It prides itself in the ability to communicate to a diverse audience and thus maximise its influence, leading Jonathan Dimbleby, journalist and presenter of Radio 4’s Any Questions programme, to comment: ‘All the political parties treat the IFS as if it were the Bible.’
Since 2002, the Director of the IFS has been the highly personable and media-savvy Robert Chote, another Cambridge-trained economist who frequently pops up on our TV screens. A former Economics Editor at the Financial Times, for a period he also served as an adviser to the senior management of the International Monetary Fund (IMF) in Washington, DC.
Like the NIESR, the IFS Council has its fair share of ‘stars’. As President, it boasts the formidable Rachel Lomax, whose illustrious career has included spells as a Permanent Secretary (for Work and Pensions as well as Transport), Chief of Staff at the World Bank and Deputy Governor of the Bank of England. Among the Committee members, the ubiquitous Professor Buiter, best known for his influential FT blog, Maverecon, pops up again. Joining him is Sir Alan Budd, who, like Lord Burns, was once Chief Economic Adviser to the Treasury and Head of the Government Economic Service; Frances Cairncross, Rector of Exeter College and a distinguished former journalist for The Economist; and Derek Scott, a former economic adviser to one Chancellor of the Exchequer and two Prime Ministers.
The IFS comes into its own at Budget time. In the run-up to the Budget, the Institute issues its Pre-Budget Report and Green Budget, an annual look at the tax and spending choices open to the government. Then, when the government finally makes its plans known, Robert Chote and his staff ‘crunch the numbers’ for the BBC’s live coverage, while their subsequent Budget publication is awaited by the Chancellor of the Exchequer with considerable trepidation – and by his opposition with ill-concealed glee, such is the Institute’s reputation for excavating ‘nuggets’ from the Red Book that the Treasury would prefer remain hidden.
In addition to its directly Budget-related work, the IFS publishes Fiscal Studies, a quarterly journal focusing on how government action affects the economy; for example, the current issue examines the economic impact of the temporary VAT cut. Other IFS publications include its Reports, covering issues of long-term policy relevance such as ‘The UK tax system and the environment’; Commentaries, which are substantial reports covering topical issues (a recent one concerned ‘The expenditure experience of older households’); easily digestible, online-only publications such as Briefing Notes and Observations; and Working Papers, which, as their title suggests, remain subject to review and are not definitive.
The IFS also organises various conferences, seminars and briefings. Recently events have been held on ‘Poverty and Inequality in the UK’, ‘The Pensions Crisis’ and ‘Taxing the Rich’.
The Institute claims, with some credibility, that it is quoted at least once a day in the media – hardly surprising, given its frequently headline-grabbing comments. For example, having analysed the government’s own numbers, the IFS recently described the fiscal damage wrought by the current economic and financial crisis as ‘breathtaking’, and predicted that it will require ‘two full parliaments of mounting austerity to repair.’ By factoring in lost tax revenues and higher social security costs, it calculates that the crisis has ‘dealt a permanent hit to the Exchequer amounting to £90 billion a year in today’s money.’ By 2017/18, this will translate to an estimated cost, imposed through tax increases and public spending cuts, of £2840 per year for each family in the UK.
The IFS has also raised doubts as to whether either the Conservative or Labour Parties can meet their ‘cast-iron’ commitments to protect National Health Service (NHS) spending, since, if the NHS budget were indeed ring-fenced, there would have to be cuts of at least 2 per cent across every other department. Even then, NHS funding would still likely fall short, by up to 31 per cent, of the ageing British population’s mounting health care needs. With devastating figures like these, any politician relishing the thought of winning the next election needs his or her sanity questioned.
The NIESR (www.niesr.ac.uk) and the IFS (www.ifs.org.uk) each have comprehensive websites offering free access to many of their publications. Unlike the NIESR, the IFS offers an individual membership programme – an application form may be downloaded from its site.
Next month, in part three of this series, the searchlight will be turned on the leading think tanks that are ideologically aligned with the free market and those that are politically aligned with the Conservative Party.