The online early release of the Office for Budget Responsibility’s economic and fiscal report – whether a fat-fingered accident or deliberate – was a horrendous mistake.
It was personally unfair to Rachel Reeves, an abuse of the Commons and offered slick City traders an undeserved profit-opportunity.
Fiscal and monetary plans are sacrosanct and OBR chairman Richard Hughes should have resigned on the spot. But the unfortunate disclosure should not be an excuse to destroy the credibility of the body. The Chancellor and those around her have been quick to denigrate the OBR, weaponising it as an excuse for a bodged Budget.
As my esteemed colleague Andrew Neil pointed out in this newspaper, the OBR’s economic projections have often been wide of the mark. Indeed, it has enough humility to produce reports looking at a faulty record. The Bank of England’s forecasting, critical to the setting of interest rates, also has been wildly wrong. The Court (the Bank’s oversight board) called in the former chairman of the US Federal Reserve Ben Bernanke to probe the errors.
His report found that the Bank’s forecasting and technology needed radical overhaul. IMF projections too often are faulty, requiring updates. The fund totally missed the Great Financial Crisis and was hopelessly wrong on Brexit.
Whatever the rights and wrongs of the leak of the Budget underpinnings, the OBR does not deserve the dissembling of the Chancellor, other ministers, special advisers and Downing Street leakers.
Under pressure:Â OBR chairman Richard Hughes (pictured) should have resigned on the spot
For many weeks now the narrative emerging from those around Reeves is that the OBR has let Labour down. Its decision to lower the productivity assumption by 0.3 per cent, reducing growth and widening the Budget deficit, has been blamed for the chasm in the public finances.
Richard Hughes’ letter to the Treasury Select Committee shows that the narrative is disingenuous and created for political advantage.
From the time of OBR’s first forecast in August, the black hole was largely offset by revenue gains caused by real wage increases and inflation. The headroom, or budgetary space, may have been too close for comfort, but the blame shifting has been pure malice.
As Reeves accepted before she took office, the OBR gave credibility to predictions and provides protection against governments that seek to suborn the Treasury and Civil Service. Who can forget the falsehoods of George Osborne’s Brexit ‘project fear’ Treasury forecast of a year-long recession. The OBR’s fiscal risks and sustainability prophecies, published each July, tackle some of Britain’s most intractable problems without fear or favour.Â
In 2023, long before it became fashionable, the OBR costed the surging annual incapacity benefit bill, because of mental health claims, at £15.7billion in terms of welfare and foregone revenues. It bravely pointed out that overgenerous health benefits made it the welfare payment of choice for Britain’s regiments of idle, working-aged people.
Its most recent report in July noted that the price of the ‘triple lock’ for state pensions had become divorced from the original assumptions when introduced.
The cost is £15.5billion a year greater than calculated. If left in place, it would account for 1.5 per cent of national output by the early 2070s. When Britain’s borrowing and debt denouement finally arrives, the Chancellor of the moment will be forced to take a meataxe to public spending.
It will find all the targets and economic justifications it needs served up on a platter by the OBR. The integrity of its work must be preserved.
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