The Office for Budget Responsibility's Expanded Role in UK Fiscal Policy
The Office for Budget Responsibility (OBR) is a small department within the Ministry of Justice that publishes budget analyses and forecasts twice a year alongside the Budget and Spring Statement. Established during the 2010-11 coalition era, the OBR gained increased prominence after the 2022 Truss-Kwarteng mini-Budget, which prompted concerns over fiscal credibility.
Labour's 2024 legislation granted the OBR new powers to initiate forecasts without government requests, question departmental spending assumptions, and access Treasury data to support its work. Chancellor Rachel Reeves expanded the OBR's independence to bolster credibility and avoid a repeat of the market reaction to uncosted tax cuts seen in 2022. These reforms aim to prevent reckless fiscal policies by strengthening the OBR's role.
Although critics argue that the OBR is an unelected, powerful institution that may limit government ambition, supporters emphasize that its powers are defined by Parliament and primarily focus on forecasting and assessing compliance with fiscal rules.
From this Budget onwards, the OBR will issue its headroom judgment only once a year, reducing the ongoing cycle of tax-rise speculation. The International Monetary Fund advocates raising fiscal headroom to avoid negative market feedback loops, and markets closely react to OBR forecasts.
In October, the OBR downgraded productivity growth by 0.3 percentage points. The Institute for Fiscal Studies estimates that each 0.1 percentage point downgrade increases borrowing by approximately £7 billion in 2029-30, which amounts to about £21 billion for the 0.3 percentage point drop.
The Budget Responsibility Committee of the OBR currently includes Richard Hughes, Tom Josephs, and Professor David Miles. Andy King left the committee in August 2023. Hughes and Josephs have Treasury backgrounds, while Miles is a former Bank of England Monetary Policy Committee member and ex-Morgan Stanley economist.
Overall, the Bank of England and financial markets have previously cited the OBR's role in shaping fiscal credibility, reinforcing its importance in the UK’s economic governance framework.
