The Office for Budget Responsibility (OBR) is an independent watchdog that oversees the UK government’s public spending plans. It is now undergoing substantial changes after the recent resignation of its chairman, Richard Hughes. Hughes announced his retirement in the wake of the internal investigation. The investigation revealed the OBR’s directorate was accountable for a premature publication blunder. His resignation should be a watershed moment for the organization. It has been, and continues to be, a vital part of the UK-wide scrutiny of UK government spending as well as the financial policies established by the Scottish and Welsh governments.
Richard Hughes has been chairman of the OBR since October 2020. In May 2023, the Chancellor of the Exchequer reappointed him to a second five-year term. This further entrenched his role as a potent force in the UK’s economic forecasting establishment. The OBR’s main roles are to produce forecasts for government spending and economic growth. More importantly, they’re able to flag potential financial pressures that they might otherwise miss in their projections.
In its latest forecast, the OBR highlighted that billions of pounds in spending pressures were unknown at the time of its March 2024 assessment. This shocking disclosure raises deep questions about the integrity of government fiscal forecasting. Recent events, including the bank crisis and rising interest rates, have again rattled investor confidence.
The backdrop to Hughes’s resignation includes contentious political decisions made during Liz Truss’s brief premiership. Notably, the OBR was not consulted prior to the announcement of a series of unfunded tax cuts in Truss’s mini-budget in September 2022. Though promising to create one as part of drafting a new economic forecast, this suggestion was shot down by Truss and her Chancellor, Kwasi Kwarteng. To be clear, the choice to not do a full-blown engagement with the OBR was very impactful in eroding investor confidence. Yet this reality highlights how desperately we need productive partnerships between government at all levels and independent fiscal monitors.
The OBR is run by a three-member board, led by an independent chairman. It goes beyond simply predicting fiscal results. It serves as an important restraint on government overreach with respect to fiscal policy. Back in July 2024, then Shadow Chancellor Rachel Reeves pledged to give the OBR more powers. This amendment would empower them to test government assumptions on spending across departments and ask for further information on any possible over- or underspends. These type of measures strengthen accountability in government spending overall.
Only a few weeks later, new legislation was introduced and enacted that increased the purview and powers of the OBR over significant taxation and spending decisions. This new law was designed to ensure that the OBR was insulated from being overrun by any future administration. It protects the OBR’s independence and power to challenge government spending plans.
Hughes’s resignation has raised questions about the OBR’s future direction and its ability to maintain effective oversight of government spending. The internal investigation that forced Hughes out underscores the central importance of accountability in leadership positions. This is even more so the case for entities tasked with safeguarding public dollars.
As the new OBR moves through this transition, it should do everything possible to re-build stakeholder confidence. The key to accomplishing this goal lies in ensuring transparency in its operations. The impact of Hughes’s resignation on the OBR’s credibility and its relationship with the government will be closely monitored in the coming months.