Richard Hughes, the head of the Office for Budget Responsibility (OBR), has announced his resignation. This comes on the heels of a deeply troubling internal investigation into the premature release of one of their most important budget analyses. This decision comes amid unprecedented scrutiny on government spending and fiscal policy. Yet recent events have especially put to the test the OBR’s value in standing guard over the UK’s macroeconomic stability.
The OBR independently tracks the UK government’s multi-year spending plans to their performance. It is at the center of predicting many of our most important economic metrics. Since its creation, the group has changed to consist of three members, including a transport chairman. Hughes took on this challenging role in the midst of the stormy seas of the Covid pandemic in October 2020. These issues range from grappling with the pandemic’s economic fallout to addressing the consequences of government policy choices.
In a signal of confidence in Hughes’ leadership, newly elected Chancellor Rachel Reeves reappointed Hughes in May 2024 for a second five-year term. The OBR has come in for strong criticism for its management of particular cases. These incidents have led to concerns about the organization’s independence and effectiveness. Notably, in September 2022, the government led by then-Prime Minister Liz Truss proposed a series of unfunded tax cuts in its mini-budget without prior consultation with the OBR. The failure to consult completely shattered investor confidence. Most policy experts agree that this was a major factor behind the subsequent crash in the UK’s fiscal fortunes.
Yet Chancellor Jeremy Hunt later had to publicly concede that the government erred in going ahead without the OBR’s input. Indeed, he described that decision as “flying blind.” The harsh reality that came tumbling out of the lid was the critical need for the OBR to provide dispassionate scrutiny and analysis of any government’s fiscal policy.
Then in July 2024, Reeves made a dramatic pivot. The OBR would get increased powers to challenge government assumptions around departmental spending but previously could only require granular information when there was a risk of overspend or underspend. This trigger was intended to strengthen the OBR’s independence to act as a fiscal watchdog over the public finances. In doing so the OBR accepted that in preparing its March 2024 forecast it missed billions of pounds in spending pressures. This ongoing oversight raises troubling questions about the transparency and accuracy of its assessments.
These plans became much more complex when the OBR mistakenly published its analysis of the Budget before it happened. This blunder scampered their plans even before Chancellor Reeves could make her anticipated rejoinder in the House of Commons. After this gaffe, an internal investigation was raised to find out who was responsible for the early release. The initial investigation found that “ultimate responsibility” for the error rested with senior leadership under the OBR.
Given these recent developments, Hughes’s resignation has raised serious questions about governance and accountability of state and federal economic oversight bodies. In September 2024, a new macroeconomic stabilization law expanded the OBR’s mandate and powers. This allows the new organization to influence key decisions on large tax and spend announcements. As the Treasury has recently underscored, this legislation was intended to provide certainty. It further gets the American people and future fiscal policies the rigorous scrutiny they deserve.
As the UK grapples with ongoing economic challenges and uncertainties, Hughes’s departure highlights the critical nature of transparency and communication between governmental bodies and independent fiscal institutions. We’ll continue to follow the leadership succession taking place within the OBR. This complex and sometimes arcane organization holds a very important role in instilling sound economic policy and investor confidence.