After Budget blunder and clashes with Chancellor, what is next for the OBR?

This is an adapted version of my analysis from the LabourList email this morning. To receive our email every weekday morning please subscribe here. 

Within minutes of the OBR’s economic report leaking before the Budget, it was hard to see how its chair Richard Hughes could remain in post. When the report into the leak, published yesterday, exposed how a similar leak occurred in March, it became all but impossible.

In his letter to the Chancellor and chair of the Treasury select committee Meg Hillier, Hughes said he took “full responsibility” for the shortcomings, described in the report as “the worst failure in the 15-year history of the OBR”.

It comes amid continued clashes between the Treasury and the OBR in recent weeks and months, with The i Paper‘s front page alleging Rachel Reeves’ team butted heads with the body over advance sight of the investigation – and Hughes’ challenge to the Chancellor’s version of events around the Budget black hole.

That is not to mention the recent report from the Centre for Policy Studies, which has cast doubt on the accuracy of its forecasts of actual managed expenditure.

With relations between the government and the OBR at an all-time low (for the current government at least), what might be next for the organisation? Two Labour MPs, Graham Stringer and Jonathan Brash, have openly called for the OBR to be scrapped in its entirety, a move also backed by the New Economics Foundation – who suggested creating a new ‘Office for Fiscal Transparency’.

The temptation for Rachel Reeves to cast the OBR into the dustbin of history must be great. After all, the organisation is a relic of George Osborne’s time in Number 11, born of his own criticisms of economic and fiscal forecasts under Gordon Brown. And, as MP Andy MacNae noted over the summer, the OBR isn’t actually that good at what it was set out to do.

“[The OBR] doesn’t have special information. It relies on publicly available data and is restricted to modelling only government policies that are fully detailed and officially in place when the forecast is made. As a result, their forecasts often miss major factors that might change economic conditions significantly. The OBR’s spring forecast could not account for the government’s planned £113bn increase in infrastructure spending, the industrial strategy or the greatest investment in social housing since the 1970s.”

What good is a forecaster that can’t look at and react to the whole picture of what government is doing?

If Reeves did take the opportunity to junk the OBR, it could also provide her the cover to lift some restraints enforced upon her by the body; the requirement for two fiscal forecasts each year has caused the government to scramble for headroom in a hand-to-mouth exercise, rather than having the room to breathe and focus on the longer-term.

That said, fully scrapping the organisation that Rachel Reeves and Keir Starmer treated as almost sacrosanct when in opposition would be quite the volte-face. There would also inevitably be questions around how the markets would react to such a move, and whether economic forecasts under different governments could be trusted without the OBR (a look to America and the move not publish the unemployment rate for October should raise red flags).

The OBR has also provided a convenient scapegoat when taxes have had to go up – without it, the Chancellor alone would take the brunt of the blame for any further hikes.

Perhaps a convenient half-way house might be to launch a review into how effective the body is. More than a decade since George Osborne launched his own review by the Treasury, it could provide the Chancellor with the cover to tinker under the hood of the OBR and make it an organisation that works with government, rather than antagonises it.

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