For many commentators, across the political spectrum, the Office for Budget Responsibility (OBR) has become symbolic of an increasingly undemocratic political system dominated by unaccountable technocrats.
They argue that its chair, Richard Hughes, and his team, are effectively responsible for deciding how much ministers can spend, through their twice-yearly forecasts against which the government’s “fiscal rules” are measured. These are judgements that affect the lives of every single one of us.
What the OBR’s defenders note, and correctly, is that Hughes has no formal power at all. He doesn’t set the fiscal rules, nor can he sanction the government for breaking them.
But it’s true that these rules have taken on a quasi--theological significance in politics. Even more so since the (poorly understood) Truss-Kwarteng mini-budget fiasco. Rachel Reeves, in her attempts to emphasise Labour’s commitment to fiscal discipline, has tied herself firmly to the last government’s fiscal rules and promised not to change them substantively. This does seem to give the OBR enormous de facto authority.
Yet despite this position of apparent power, the real story is more complicated. Hughes has few resources at his disposal. The OBR has about 50 staff, mostly junior, and a budget of £4m. It is deciding the fate of the country with a smaller team than a local authority operations department.
As a result, the OBR is very dependent on the Treasury for data. There is no way a handful of staff can track the complexities of public spending across multiple departments and public bodies, hence the reliance on Treasury officials.
This tempers the OBR’s independence. Judgements about the wider performance of the economy are genuinely free of ministerial interference, but assumptions about what the government intends to spend in this and future years rely on the Treasury being honest.
Unsurprisingly, that honesty is often lacking, given the interests of the ministers whom the Treasury serves. This undermines the whole exercise. The OBR’s analysis of its own performance makes it clear that the biggest factor in its forecasts being consistently over-optimistic is the government repeatedly underestimating how much it will spend later.
Hughes, who has been in the role since October 2020, and his colleagues have become increasingly frustrated by this obvious flaw in the system. A few months before the election, he told a parliamentary select committee that the very high-level (and obviously absurd) spending numbers he’d been given for future years weren’t even fiction, because “someone has bothered to write a work of fiction and the government hasn’t even bothered to write down what its departmental spending plans are”.
After Reeves’ post-election statement in July, highlighting that the previous government had committed to far more spending in the 2024 to 2025 financial year than it had previously acknowledged, the OBR announced a review into the quality of the information it had been given by the Treasury, criticising “the transparency and credibility of the existing arrangements.”
Right now, this suits Reeves, as it helps her highlight Tory irresponsibility. But it won’t be long before she’s looking for ways to game the system herself. The chancellor has boxed herself in by ruling out rises to any of the major taxes during the election, despite knowing full well that spending was going to have to rise well above the amount in Tory plans.
Reeves will be able to raise some revenue by increasing smaller taxes, and she may choose to make some subtle changes to the fiscal rules to give herself a little more room. Assuming, though, that she’s not willing to reverse her pledges on the major taxes, her only option will be to, once again, pretend that we will need to spend less in the future than we really will.
There is nothing the OBR can do to stop this. Whatever procedures and checks it puts in place, if the government says it will spend a certain amount on education or transport then it’s impossible to prove it will end up spending more. The OBR can highlight its concerns, but the body has already been doing that, and it hasn’t made any difference. Everyone is operating in the knowledge that the numbers don’t add up.
All of which goes to show that, ultimately, it isn’t possible to create technocratic guardrails to constrain poor behaviour by government. Indeed, attempting to do so risks creating cover for the precise form of bad behaviour you were trying to prevent. Despite Jeremy Hunt’s obvious gaming of the system, the OBR was, nevertheless, forced to sign off forecasts saying the government was meeting its rules. Which was then dutifully reported by the press. Thus creating the apparent space for massive tax cuts that were, in fact, an act of immense fiscal indiscipline.
The real risk of the OBR is not that it is undemocratically ruling over us, but that it is (unintentionally) legitimising misrule by government. Fixation with the formal (and arbitrary) rules of the game is allowing for significant misdirection. Rather than putting yet more emphasis on these rules, Reeves should refocus attention on the real question: what do we actually need to spend—and tax—to have the services we want? The problem is, no one would like the answer.
