OBR's Expanded Powers and Role in the UK Budget Process
The Office for Budget Responsibility (OBR), a budget watchdog that publishes forecast data and assesses compliance with fiscal rules twice yearly, is seeing its powers expanded under Labour's 2024 law. This legislation broadens the OBR's scope to initiate economic forecasts and question departmental spending allocations. However, Labour's Rachel Reeves stresses that the OBR's role is to forecast the economy rather than dictate policy decisions.
The OBR's Budget Responsibility Committee is led by Richard Hughes, Tom Josephs, and David Miles, all with backgrounds in the Treasury, Bank of England, and Morgan Stanley. Despite its expertise, critics label the OBR as an unelected and overly powerful body. Opponents from Labour argue that it imposes spending limits, while the Chancellor defends the OBR by stating its authority derives from Parliament and that ultimate control over policy rests with the Chancellor.
Some economists caution about the rise of a 'fiscal technocracy,' highlighting that tax and spending choices remain fundamentally political decisions rather than purely technical ones, as noted by the Institute for Fiscal Studies (IFS). In recent forecasts, the OBR downgraded productivity growth by 0.3 percentage points in October. The IFS estimates that each 0.1 percentage point downgrade corresponds to approximately £7 billion of additional borrowing required for the 2029-30 fiscal year, making the 0.3 percentage point cut equivalent to around £21 billion.
Starting with this Budget, the OBR will calculate fiscal headroom only once a year to reduce speculation about tax increases. The International Monetary Fund advocates for higher fiscal headroom to help curb economic doom-loop effects.
The 2022 mini-Budget crisis underscored the OBR's role in maintaining market confidence, with Bank of England Governor Andrew Bailey emphasizing the importance of the OBR during emergency meetings. The article notes that even without an OBR, market reactions themselves serve to constrain budgets. Nevertheless, debates continue internationally about the necessity and future role of similar fiscal watchdog bodies.
