UK budget watchdog in danger of strangling economic growth, says TUC boss | Office for Budget Responsibility

Britain’s budget watchdog is in danger of stifling growth and must be modernized to remove its “inherently linked” support for austerity economics, the Trades Union Congress has warned.

With less than two weeks to go until Rachel Reeves’ autumn budget, the Office for Budget Responsibility (OBR) risks being put in a “straitjacket” on growth in living standards, the union umbrella group has said.

It called for an urgent review of the OBR’s role at the heart of the chancellor’s budget-setting process at the first opportunity following the 26 November tax and spending announcement.

TUC general secretary Paul Nowak told the Guardian: “Whatever happens in the budget, I don’t think the Chancellor wants to go down the path of austerity 2.0.

“But we have a fiscal watchdog that is effectively equipped to support this slash-and-burn approach to our public services.”

Reeves is understood to be furious with the OBR over the timing of its revised productivity forecast, which is expected to leave a hole in the public finances of up to £20bn in the budget and jeopardize its fiscal rules.

Hit by high borrowing costs and U-turns on Labour’s prosperity, the chancellor is expected to raise taxes and cut spending within a fortnight to regain the ability to meet his fiscal target.

Amid not-so-secret fury within the Treasury, Labour’s troubling figures have highlighted that the Conservatives’ pre-election tax cuts could be dismissed as unaffordable if the OBR cuts its forecasts at an earlier stage (in 2023, for example).

The Chancellor is thought to have received updated OBR forecasts which reduce the productivity growth trend assumption by 0.3 percentage points. The watchdog has produced successive forecasts predicting a return close to productivity growth rates recorded before the 2008 financial crisis, although the country has failed to achieve this for the better part of two decades.

Calling for a post-budget review, the TUC argued it could not escape questions about how the watchdog got its previous forecasts so wrong. He said the OBR could not escape scrutiny for its part in determining the chancellor’s tough choices.

Nowak said: “The timing of the OBR’s productivity view was confusing. Why didn’t they publish it in a way that would have given them certainty to plan at the end of the last government or the beginning of this government?”

“It is therefore time for us to urgently review whether the OBR is fit for purpose. The watchdog has serious questions to answer and it needs urgent modernization to prevent it becoming a drag on growth.”

The watchdog, founded in 2010 by former Conservative Chancellor George Osborne, has faced criticism from across the political spectrum in recent years over the increasingly deteriorating position of the UK economy and public finances.

The TUC said the watchdog had effectively served as a “cheerleader for austerity” since its establishment and had failed to adequately take into account the benefits from long-term investment in the economy.

Liz Truss defied the OBR and abandoned the 2022 mini-budget, contributing to the bond market meltdown that greeted her unfunded tax cut plan.

Reeves tried to turn this to Labor’s advantage in last year’s election campaign by promising to strengthen the role of the OBR while warning voters that the Conservatives should never be trusted on the economy.

Many in Labor ranks have become increasingly disgruntled after the Chancellor chose to cut welfare spending in his spring statement to avoid breaching his fiscal rules; This has led him to consider reducing the OBR’s twice-annual forecasts to a single set of forecasts to be published with the autumn budget.

The TUC has called for a single forecast and patchwork solutions to plug forecast funding gaps to slow the “roller coaster of speculation”. The International Monetary Fund suggested the UK could only assess compliance with the fiscal rule once a year, but called on the government to continue publishing forecasts twice a year.

The OBR declined to comment. A Treasury spokesman said: “We respect the OBR’s independence and will not comment on speculation ahead of its forecasts being published on 26 November.”