This article is taken from the November 2025 issue of The Critic. To get the full magazine why not subscribe? Get five issues for just £25.
The Office for Budget Responsibility is not a popular institution. Politicians and commentators, on the left and the right alike, accuse it of hamstringing government with excessively ungenerous forecasts, which rob the Chancellor of the Exchequer of vital room for manoeuvre. But whilst it would be nice, on this issue as with so many others, to imagine that Britain’s problems were down to the actions of nasty baddies, it is not the case.
In fact, if anything the strongest case against the OBR is precisely the opposite: that it has, by being unjustifiably generous, helped successive governments dig Britain into the fiscal hole it now finds itself in — and the latest attacks on it by the Treasury are the result of the OBR finally, belatedly, doing its job properly.
The basic problem is this: for years, the OBR has forecast, in every one of its biannual Economic and Fiscal Outlooks (EFOs), that a short time in the future annual productivity growth will revert to its pre-crisis norm of a couple of per centage points a year. It never has, of course. But instead of updating its assumptions, the OBR has simply kept shifting the promised return to pre-crisis normality further into the future.
So far, so dry and technical. But this decision has had big consequences for Treasury policy, because both Labour and the Conservatives before them have drawn up their spending plans on the basis of its five-year projections, and if those projections include several years of strong productivity growth, that adds up to tens of billions of illusory pounds going into those plans.
Politically, this does two things. First, it allows the chancellor du jour to announce money now, on the basis of future tax receipts that will never arrive, which gets baked into spending plans. Second, it helps politicians justify breaking their promises and raising taxes because when they need to find the money, they can say that growth has been “weaker than expected”, justifying a revision in their original, good-faith proposals — even if those expectations were pure fantasy.
The OBR and Treasury both knew its five year growth predictions were fiction
It would be bad enough if this reflected a sincere delusion on the part of the OBR’s forecasters. But they’re not idiots; it is common knowledge both there and at the Treasury that the productivity growth predictions were fiction.
But as too often in modern Britain, the situation persisted for so long because it suited neither side to fix it. The officials knew that changing the forecast would mean fresh accusations of undermining the government, whilst the Chancellor was hardly likely to pick a fight with the budget watchdog on the basis that it was overestimating the British economy and giving her too much money to spend.
Lo and behold, when in September it was reported that the OBR was finally planning to downgrade its projections (after what the Guardian described as “a carefully choreographed ‘summer stocktake’ of its forecasting model”) it came immediately under attack from the Treasury. Insiders attacked the “politically damaging timing” of the decision — as if there could be any point where it was not damaging — and railed against the unfairness of the OBR withdrawing a tissue of lies it had extended to Jeremy Hunt.
Such frustrations are understandable: the impact of a 0.2 per cent reduction in growth projections would be to suddenly put Rachel Reeves in a £20bn fiscal black hole (sound familiar?) without any new spending or changes in policy. Had such reductions come before the election it would certainly have made life more difficult for the Tories.
But the pity-me act can only go so far. No sane country can continue to set budgets based on lies with the excuse that it did so in the past. Moreover, much of the Chancellor’s difficulty with the OBR is very much of her own making. Remember, it can only make projections on the basis of what the government tells it; the OBR is a machine programmed by ministers, and Reeves has repeatedly coded it to shoot herself in the foot.
Some of those decisions were commendable, such as scrapping Hunt’s nonsensical “rolling” debt reduction target (the fiscal equivalent of a diet which always starts tomorrow). But if she was going to do that, the Chancellor should have overhauled the rest of her spending plans to match the new reality. She didn’t.
The result was that when the bond markets wobbled Reeves was caught in a vice, and forced into a desperate, short-notice scramble for savings that resulted in the abortive (and hugely damaging) attempt to cut welfare.
Most of her missteps, however, lack such a kernel of virtue. It was foolish, for example, to try and hold only one fiscal event per year when the OBR is mandated to produce two EFOs a year. Did anyone seriously think that if the watchdog announced that the government was going to breach its fiscal rules, the bond markets would patiently wait six months for a response? The Chancellor is now trying to make the OBR publish annually, but the damage was done.
Most egregiously, Reeves has consistently left herself far less wriggle-room than did Hunt, consistently spending right up to the wire of what the watchdog predicted was possible.
This was extremely reckless: not only did it involve spending money based on growth forecasts she and her advisers knew to be nonsense, but it amounted each time to a bet that nothing in the wider world would upset the predictions: that Donald Trump wouldn’t win a second term, for example, and then that if he did he wouldn’t embark on a tariff crusade.
That’s on top of the usual self-sabotage that every chancellor engages in, such as promising to hike fuel duty next year when they have no intention of doing so. (Every time they postpone the decision but promise to make it next time, they punch a £4bn black hole in their own finances. Every year.)
You might be tempted to draw from all this the conclusion that the world of the fiscal rules is one of nonsenses and fictions. To an extent, you would be right. The biggest question mark over the wisdom of the bond markets is that they panicked at the prospect of Reeves missing a deficit reduction target which they’d been happy for Hunt essentially not to set at all.
The mistake too many people make, however, is to think that the bizarre rituals of the fiscal rules are about restraining government spending. They’re not: they’re about facilitating government spending by keeping the bond markets happy. Like the daemons and divinities which dance around H.P. Lovecraft’s Azathoth so that he will continue to sleep and dream the universe into being, our politicians twist and writhe so the blind idiot god of the bond markets doesn’t awaken to Britain’s actual fiscal position and stop lending us money it probably shouldn’t.
George Osborne supposedly established the OBR to lock in fiscal discipline and impose fiscal rectitude on subsequent chancellors. In that, it has manifestly failed. But on another level, he founded it so it would shield his decision making with long, technical documents which most journalists, let alone voters, won’t read. Viewed that way, it has done good service to him and his successors.
You can’t, however, actually take the politics out of fundamentally political decisions. Attempting to do so merely changes the character of the debate from a direct one about the real problem to an abstracted one about procedural arcana, and moves it from the democratic arena to a pseudo-expert one which excludes a lot of people.
We see this pattern time and again: a codified constitution shifts politics into the courts and replaces substantive debates (“Should people have guns?” “Was this minister’s conduct unacceptable?”) with misleading or dishonest interpretive ones (“What did the Founders mean by the Second Amendment?” “Did they breach the Ministerial Code?”). There are worse ways to conceive of the OBR than as an attempt to codify the fiscal constitution, and with similar effects.
Our fixation on the fiscal rules is deeply silly — but not because they don’t matter, as if Reeves has decided to make her life miserable by playing with a self-imposed handicap. No, it’s silly because the fiscal rules merely describe the ideal arc of a trajectory which ends in the abyss.
The big revenue expenditure budgets (primarily the NHS, pensions and social care) are eating the British State from the inside out and politicians have not only failed to control them but actively legislated to compound the already-ruinous pressures created by our changing demography. At the same time, taxes are at historic highs and large parts of what our ancestors would have considered essential parts of civil government, such as the courts and prison system, are all but non-functional.
All the endless agonising over the fiscal rules is procrastination or displacement activity, the governmental equivalent of endlessly revising and perfecting one’s revision timetable in lieu of actually hitting the books. What we really need is a debate about that. But no politician wants to have it, for the reason that the public doesn’t want to hear it.
Perhaps that’s the deepest truth the OBR obfuscates: that it helps politicians lie to us because lies are what we want — or at least, they’re what wins elections, which is ultimately much the same thing but with a layer of deniability thrown in between ourselves and our choices.
So yes, let’s wake up and free our minds from the prison of the fiscal rules. Just know that when we do, that cage will turn out to have been suspended over very deep water, and it was keeping the sharks out.
