Osborne moves to restore fiscal watchdog credibility

Chancellor of the Exchequer, George Osborne, holds 19th-century finance minister William Ewart Gladstone's old Budget box for the cameras outside 11 Downing Street, before delivering his first Budget to the House of Commons in London June 22, 2010.

LONDON (Reuters) - The cross-party parliamentary Treasury Select Committee will have the power to veto any candidate chosen to head the country's new fiscal watchdog, Chancellor George Osborne said on Thursday, in a move to restore credibility to the body.

Osborne launched the Office for Budget Responsibility with great fanfare soon after the coalition government took power in May with a stated intention of removing political interference from fiscal forecasts.

But accusations that the OBR has changed job loss forecasts in a way that enabled the prime minister to put a more positive gloss on spending cuts has cast doubt on its independence.

Then it was revealed that the OBR's interim head, Alan Budd, would leave his job in August. He said he had always planned to leave as he had been on a three-month contract, and he denied there had been any ministerial meddling in the OBR's work.

But Budd, a former Treasury official, said there was a perception that independence had been compromised, and he has recommended that the OBR's office be moved out of the Treasury building and that parliament be given a say over appointments.

In his first appearance before the TSC since becoming Chancellor of the Exchequer, Osborne said on Thursday that he wanted to ensure the OBR's independence was recognised and that he would give parliament a say over who heads it.

"What I would propose to do, of course subject to your approval, is to give this select committee a veto...on the person nominated by the chancellor of the day," he said.

It will be the first time the parliamentary committee has been given real teeth for its many "confirmation hearings."

An advertisement for the vacancy went up on the OBR's website on Thursday and an appointment is expected in September, a month before the government publishes its spending review, which is expected to impose huge cuts on the public sector.

Applicants will be vetted by a panel that includes Treasury Permanent Secretary Nick Macpherson and the outgoing Budd. The Chancellor will then make a decision based on their advice but under Osborne's proposals, the TSC would then be able to veto the appointment.

The appointment -- which offers a full-time maximum salary of 142,000 pounds -- would be for a fixed term of five years that can be renewed once subject to government and TSC approval.

The government is also looking for two people to join the executive committee of the OBR as the current members are also leaving. These appointments, which pay up to 115,000 pounds a year, are expected to be made in October.