Who knew economic forecasters could get so impassioned? The Office for Budget Responsibility’s chairman Richard Hughes went gung ho in criticising the government at yesterday’s House of Lords economic affairs committee and blamed the Treasury for the OBR’s “work of fiction” forecasts. Not the first time he’s pointed the finger at Sunak and Hunt…
Hughes said the OBR’s forecasts are flawed because they are based on “questionable assumptions” and a lack of information from the government:
“Some people call [the forecasts] a work of fiction, but that is probably being generous when someone has bothered to write a work of fiction and the government hasn’t even bothered to write down what its departmental spending plans are underpinning the plans for public services“.
The forecasting chief wants the margin for error in debt-reducing fiscsal rules widened and warned that Hunt has given himself a “tiny” corridor in which to operate. It’s probably not a good idea to tie your budgets to a forecaster that has misjudged UK public sector net borrowing by £53 billion every year since its formation…
Efforts to counter the orthodoxy of the OBR are growing. 46 Tory MPs and four peers, including Jacob Rees-Mogg, Priti Patel, and Suella Braverman, wrote to Jeremy Hunt on Sunday and have now published a report into the OBR’s wildly inaccurate forecasts. Their analysis has found:
The Conservative Way Forward group says that Hunt should end the Treasury’s “unhealthy dependence” on the OBR and “allow a diverse range of perspectives to provide scrutiny of the government’s budget and fiscal events”. The Tories will have to kill their own baby…
In the OBR’s first ever analysis of its long-term performance last summer the quango finally admitted it tends “to overestimate real GDP growth and underestimate government borrowing”. Meanwhile its continued failure to use dynamic modelling in its forecasts means it always concludes tax cuts are doomed to fail…
Read the group’s report and their letter to Hunt below:
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…
Rachel Reeves has just wrapped up her conference speech. While it was mostly a Greatest Hits compilation of Labour’s favourite soundbites – “backing the builders”, “Labour is the party of sound money” – Reeves’ confirmation that the Office for Budget Responsibility is about to have its fingerprints all over government tax plans through a legal “Charter” will set alarm bells ringing for anyone who isn’t in love with the Resolution Foundation. A good day to be Torsten Bell…
Shadow Chancellor Rachel Reeves has announced Labour would give the Office for Budget Responsibility even greater oversight of the Treasury if elected, with Ministers legally bound to consult the OBR overlords before every single major fiscal event. Supposedly this is to prevent the OBR being “gagged” by Ministers who dare to do things they disagree with…
Reeves also revealed major tax and spend policies would be announced in November, with only mild tinkering in spring. She’s convinced this is a good idea, even though it obviously means the government won’t be as nimble in responding to unpredictable events:
“This is good international practice, that you set a date for the budget and you stick with it. “And to have a budget in the autumn rather than just a few days or weeks before the new financial year gives businesses, gives families, a chance to plan for any changes in taxation, for example, so that’s good international practice.”
Guido has already covered the ideological bent of the OBR; it is stuffed to the gills with Resolution Foundation types who hate Brexit and love taxes. One member of their advisory panel even claimed Soviet planning was beneficial in some countries. They are hardly going to beat the drum for pro-growth policies, even if Sir Keir pretends he’s more free market than the IEA nowadays…
Liz Truss has immediately fired back:
“It beggars belief that Labour think Britain’s problems will be solved by bigger government and even more powers for quangos. Hard-working people and businesses – freed from overbearing regulation, tax, and debt – are going to get Britain growing again, not more bureaucrats in London.”
Right on that one…
