‘In the spirit of Tony Benn and Margaret Thatcher – scrap the OBR’

If you meet a powerful person, ask them five questions: “What power have you got? Where did you get it from? In whose interests do you exercise it? To whom are you accountable? And how can we get rid of you?”

Whilst your co-authors to this article are not ‘Bennites’ we do agree that the late Tony Benn MP, firebrand minister from the 1970s Labour government, had a point when he made that statement. Certainly, when it comes to The Office for Budget Responsibility (OBR).

The OBR is a quango, a quasi-autonomous non-governmental organisation, endowed with powers that have expanded with legislation, granting it more influence now than at any time in its 15-year existence.

We believe the OBR’s powers have exceeded reasonable limits, resulting in perverse decisions that have undermined growth and jeopardised democratic accountability. It is not the fault of its 52 civil servants, but rather the consequence of its evolution into a more powerful entity than it was designed to be.

Advisers advise, ministers decide

As Margaret Thatcher once said: ‘advisors advise, and ministers decide.’ But the late changes to the government’s Spring Statement suggest that the OBR has other ideas – as some claimants to disability benefits may well testify, as they feel the squeeze from last-minute cuts influenced by OBR forecasts.

The OBR was created in 2010 by George Osborne to ensure that chancellors would not evaluate their own performance on borrowing, economic growth figures and public finances. It also served a political purpose at successive elections – to contrast the new Treasury’s ‘strong fiscal rules’ to a ‘there’s no money left’ missive from the outgoing Chief Secretary.

READ MORE: Local elections: Reform took four times more Labour seats than other parties

The OBR was meant to restore confidence in the management of public finances by striving for balance, ensuring that current tax revenues would cover day-to-day government spending, with borrowing limited to investment, to foster future efficiencies and reduce the burden on public funds. By being seen as a neutral arbiter, it could advise politicians against imprudent or uncosted measures that could harm the public finances.

You would ignore it at your peril, as Liz Truss and Kwasi Kwarteng learnt – the hard way.

The OBR at Delphi

Part of the problem lies in the OBR being treated like a Delphic Oracle. Measures are crafted to gain its approval rather than capturing the practical awareness of what works ‘on the ground’ from politicians. When it comes to forecasting the future, the OBR doesn’t always get it right.

For instance, its assessment of the impact of cuts to public spending from the 2010-2015 coalition government were overly pessimistic, leading to significant additional leeway for government spending for that period.

In all likelihood, if it had existed in 2008, the OBR would have advised against quantitative easing. But it is the government that would have borne the consequences of a banking collapse, not ‘sense-checkers’ at the OBR. One thing we learnt from 2008 is that global economic shock therapy and fleetness of foot is sometimes necessary.

The UK has been in a productivity crisis for many years. It may require radical action to get it back on track. The Prime Minister told Parliament last week that the OBR had failed to ‘price in’ the government’s back to work plans. The spreadsheet approach adopted by OBR fails to recognise the financial benefits of practical measures like earlier treatment for people with musculoskeletal injuries to help them back to work.

Economic projections are not a silver bullet. They hinge on human behaviour, making them notoriously difficult to anticipate. The way individuals respond to specific tax policies cannot always be calculated. While economics is classified as a social science, there will always be a significant degree of conjecture involved in any proposals.

Perhaps Benn and Thatcher were both right

It is easier for economists to take a cautious stance and decline impactful proposals. Consequently, unprotected departments are always likely to face deeper cuts than necessary to align with the government’s forecasts. Over the years this approach has also had a knock-on effect to capital spending – upon which the future prosperity of our nation depends.

The evidence suggests that the OBR has influenced decisions such as the reduction of HS2 to a stump between Acton and Birmingham. Whatever your view on HS2, the decision to cut the project north of Birmingham to adhere to projections for 2028-2029 and beyond exemplifies how compliance with OBR rules can undermine the potential long-term benefits of major infrastructure.

That could happen again to other projects where the OBR indicates a future budget overrun. Long-term investment in the UK has become more vulnerable, as governments scramble to meet self-imposed targets.

In contrast, one can observe the German government’s decision to exempt defence spending from fiscal constraints in light of the emergency in Ukraine, and the US decision to reduce defence commitments to Europe. It is beyond the remit of the OBR to allow departmental spending to grow in response to such an emergency here.

These are surely questions for government and Parliament to determine, not the OBR. The OBR has served its useful purpose. Governments should be evaluated based on their overall management of the economy.

We hold elections to cast an eye over would-be leaders, to judge whether we can trust them in the eye of a military conflict or a financial storm, and to make decisions on our behalf. Perhaps Tony Benn and Margaret Thatcher were both right.

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