Guido is glad to see his continued coverage of the OBR’s credibility deficit brought up in the Commons. Tory backbencher Greg Smith challenged Sunak at PMQs to give us a “better system of financial modelling so we can get taxes lower” instead of relying on “habitually wrong” OBR forecasts. Smith is right that “accurate and robust modelling is required” to plan policies. Just last week the OBR chairman blamed Sunak and Hunt for inaccuracies in forecasts and warned the next set might swing again by a whopping £30 billion. Meanwhile Labour pledges to give it the final say on economic policy…
Despite a Downing Street insider only this week telling Guido that they recognised there was a problem with the groupthink of the OBR’s self-selecting personnel, Sunak decided to swerve criticism of the OBR and praised its “transparency and independence” before patting himself on the back for his Autumn Statement. Politicians are still bending over backwards for their quango overlords…
Chairman of the Office for Budget Responsibility (OBR), Richard Hughes, pointed fingers at Rishi Sunak and Jeremy Hunt, blaming them for the watchdog’s inaccurate predictions. The OBR managed to get its deficit forecast wrong by £30 billion last November, apparently the fault of the government. If you are making forecast errors of that magnitude on a three-month time horizon you are simply not responsible.
Now Hughes is preparing for his forecasts to be wrong again. He claimed forecasts might swing by as much as £30 billion again this time round, claiming this is courtesy of ministers’ knack for deviating from their own plans. Speaking to MPs on the Public Accounts Committee, he said:
“As we all know, there are patterns of behaviour in Government where they say they are going to do things and then everybody knows they are not going to do them. But we have to believe them when they say it…So that could drive up to £20-£30 billion error in our medium-term forecasts of public spending.”
He agreed with some economists that Hunt’s Autumn Statement which announced £20 billion of tax cuts while pencilling in equally large spending reductions was “implausible“. And Labour thinks the OBR should run the economy…
Office for Budget Responsibility chairman Richard Hughes and member of their Budget Responsibility Committee David Miles have appeared before the Treasury Committee this morning to talk about their views on the Autumn Statement. Hughes pointed out Hunt “hasn’t adjusted public spending plans“, with “pressure pushing up on spending and down on revenues“. A government planning to get debt falling in 5 years would find that objective “certainly at risk” in the current situation. As Guido pointed out last week, debt is rising in nominal terms, real terms, and as a percentage of GDP, despite Hunt’s jubilation at the Autumn Statment. A natural result of failing to control spending…
The OBR wasn’t keen on Hunt’s claim this is the largest tax cut since the ’80s and said that’s “not a figure we’ve used” and this is only the 3rd “fiscal loosening” event since the body’s foundation in 2010. The economists said frozen tax thresholds instead have an “unambiguously negative effect” on incentives, combined with an NI cut that is “swamped” by stealth tax rises. Sunak and Hunt were probably expecting more people to be distracted by the cuts than focus on their continuing massive tax grab…
According to the IFS “It’s not accurate to say that debt is falling. Public sector debt is currently rising in cash terms, real terms, and (most importantly) as a per centage of national income.” Yet today both Sunak and Hunt have claimed the debt is falling as per one of Rishi’s original five pledges. This is simply not true.
To keep debt from rising above 100% of GDP over the long-term would require a cut in annual spending of 4.4% of GDP according to the OBR. After today real-terms spending is scheduled to rise even if the Tories win the next election. The simple truth is the national debt will keep on rising unless the economy grows faster or spending is cut.
New figures from the Office for National Statistics show that Public Sector New Borrowing in October was £14.9 billion £4.4 billion higher than October last year. That’s the second highest October borrowing since records began in 1993 – only the pandemic year 2020 is higher…
Borrowing is still running 15% below what the OBR forecast in March, because tax receipts were £13 billion higher than predicted. Hunt’s private OBR statistics, delivered last week, are said to tell him there’s around £20 billion in “fiscal headroom” which will be trumpeted to give out tax cuts. Spending is up: public sector pay has increased 8% from last year and welfare benefits by 22%. It’s worth remembering that when growth is zero and spending isn’t cut – debt is increasing – despite Rishi’s pledge to reduce the debt. And debt is taxation deferred…
The OBR is on the defensive this morning after fresh attacks on their repeatedly inaccurate modelling. They are saying that they will be introducing more “dynamic” modelling into their forecasts for the Autumn Statement and beyond, so behavioural changes and incentives will be considered in response to fiscal policy. Its long-time inability to do so means it always concludes tax cuts are doomed to fail…
The Truss-era Growth Commission, along with other free market think tanks, has dynamic modelling as its keystone in pushing for tax cuts. At the launch of its alternative budget, co-chairman Doug McWilliams said “the jury’s out” on whether the OBR will actually fix its forecasting, though he was “impressed with the result“. He said without continued pressure on them to address their “failure properly to look at the impact of policy changes on behaviour, it would have been surprising if they’d made an announcement today“. Guido has certainly been making that case…
