UK Budget Office's Role and Recent Reforms
The Office for Budget Responsibility (OBR) publishes Budget analysis and forecasts twice a year, assessing whether the UK government meets its fiscal rules. Its powers stem from Parliament, with responsibilities including producing forecasts, scrutinising policy costs, and assessing compliance with fiscal rules. The chancellor retains ultimate policy power and can change rules or policies.
Recently, Labour's 2024 law has expanded the OBR's powers, allowing it to initiate forecasts without government request, access Treasury data, and question departmental spending. These reforms, introduced by Chancellor Rachel Reeves, aim to boost the OBR's independence and credibility. Reeves appoints members to the Budget Responsibility Committee with the Treasury Select Committee's consent.
Starting from this Budget onward, the OBR's headroom calculation will be made once annually, reducing the Treasury's frequent need for OBR analysis and curbing speculation over tax rises.
The OBR's October productivity forecast was lowered by 0.3 percentage points, which the Institute for Fiscal Studies (IFS) estimates adds about £21 billion to the Budget gap in 2029-30 due to increased borrowing costs.
The OBR's role has sparked debate: some on the Labour left argue it enforces austerity, while others see it as a neutral fiscal watchdog, with policy decisions remaining with the chancellor and Parliament. The 2022 mini-Budget episode highlighted the OBR's influence. Market institutions like the IMF and Bank of England support headroom mechanisms to avoid fiscal crises and acknowledge the OBR's role in crisis management.
