UK Office for Budget Responsibility's Role and Recent Developments
The Office for Budget Responsibility (OBR), the UK's budget watchdog, is responsible for forecasting the economy and scrutinising the costs of policies. It is housed within a corner of the Ministry of Justice. Despite its official role, critics, including figures from Labour and the Trade Union Congress (TUC), argue that the OBR wields excessive influence, describing it as unaccountable or a constraint on economic growth.
According to OBR chief Richard Hughes, its powers derive from Parliament and include forecasting, scrutinising policy costs, and assessing whether the Chancellor meets fiscal rules. In 2024, Labour passed legislation to expand the OBR’s powers, enabling it to initiate forecasts independently of the government, question departmental spending assumptions, and access Treasury data to aid its work. This reform followed the 2022 mini-Budget and aimed to restore market credibility; Labour's Reeves characterized it as enhancing the OBR's independence and credibility in policy-making.
By September 2024, reports emerged of frustration within the Treasury regarding the OBR's role, with Reeves suggesting the OBR should focus on economic forecasting rather than commenting on policy.
In October 2024, the OBR lowered productivity growth forecasts by 0.3 percentage points. The Institute for Fiscal Studies (IFS) estimated that each 0.1 percentage point downgrade in productivity equates to an additional £7 billion in borrowing by 2029-30, meaning the 0.3 percentage point reduction could add approximately £21 billion to borrowing.
From the current Budget onwards, the OBR will calculate fiscal headroom only once a year to limit speculation about tax rises. The International Monetary Fund (IMF) has advised increasing this headroom to prevent a negative feedback loop, but markets continue to constrain policy decisions.
