The Office for Budget Responsibility (OBR) is coming under heavy criticism. Debates have been raging regarding its effect on the long-term fiscal policy of the United Kingdom. Created to police Westminster’s austerity agenda, the OBR has a determining effect on the decisions that any government will make on tax and spending. Richard Hughes, the current chairman of the institution, is a former advisor to the UK Treasury. He is a Harvard grad and former Treasury mandarin in his own right.
Chancellor George Osborne created the OBR in 2010. Its intent was to increase transparency and credibility in the UK’s tax/spending plans. As the independent watchdog, its responsibilities include producing forecasts, scrutinizing government policy costs, and assessing whether the Chancellor is adhering to fiscal rules. In light of recent events, many are starting to wonder whether the OBR has become too powerful.
When they met in October, the OBR reduced its forecast for productivity growth by 0.3 percentage points. In itself, this downgrade is bad news – not least for the government’s ability to deliver National Insurance cuts ahead of various elections in 2024. Business critics claim that OBR’s assessments limit the government’s base, or government’s aspirations and limit the economic growth.
Lou Haigh, a prominent figure in the opposition, characterized the OBR as an “unelected institution dictating the limits of government ambition.” To echo these sentiments, Praful Nargund said, “The OBR was set up not to deliver good policy and get rid of austerity. In its blind quest to restore credibility, it has pushed us further down the spending-cut rabbit hole. Now, it feels like there’s no resolution on the horizon.
The OBR has been accused of creating a “straitjacket on growth” by the Trades Union Congress. These criticisms expose a civilizing divide. On the one hand, fiscal hawks urge demand-side austerity, on the other, progressive caucus backers demand a bigger spending plan. David Miles, a former member of the Bank of England’s monetary policy committee and chief economist at Morgan Stanley, noted that the current economic environment demands a reevaluation of fiscal policies.
Countering arguments of overreach, Richard Hughes believes OBR’s powers are still narrow. He continued, “The only powers we have are the ones that Parliament has given to us in statute. It is possible to project what’s just around the corner. You have the power to question the costs of government policies and judge whether the chancellor is on course to meet her fiscal rules. Hughes emphasized that it is ultimately up to the Chancellor to choose which policies to implement and to modify any existing fiscal rules.
Under Hughes’ leadership, the OBR has recently rolled out charts showcasing this alarming trend.
Government tax burdens
Tax burdens have increased to post-World War II highs in the Johnson-Sunak government. This data is a helpful reality check amidst all the good news, highlighting the continued challenge of balancing fiscal responsibility with a focus on economic growth. Hughes’ comments to the BBC further elucidated the OBR’s position: “The Office for Budget Responsibility’s true power is not at the level its critics suggest.”
The debate over what role the OBR should play goes beyond just the numbers, it’s about competing philosophies on economic governance. While some call for austerity and fiscal prudence, others, including many leading economists, call for stimulating growth with more public investment. Rachel Reeves stated, “The OBR have got an important job to do and their job is to produce forecasts on the economy – not to give a running commentary on government policy.”
As these conversations progress, it is still clear that the OBR will continue to play a powerful role in UK fiscal policy. Given its past successes in swaying government policy, it begs the question of what its future role will be in crafting national economic strategies. How Congress finds the balance between oversight and independence will shape its lasting contribution.
Andy King was on the Budget Responsibility Committee until August 2023. He accepted the reality that a body designed to enforce austerity would have a hard time pushing pro-growth strategies. This sentiment underscores a critical challenge: how can an institution created for one purpose adapt to meet the demands of changing economic landscapes?
The continuing controversy over the OBR’s independence cuts to the heart of an underlying British political fault line over who gets to manage the economy. Many critics have taken issue with the principle that an independent body should be making policy choices for the federal government. As Liz Truss remarked, “The economic establishment fundamentally doesn’t want the status quo to change.” This argument showcases that experienced prejudices could very well be ingrained in institutions such as the OBR.