TUC calls for urgent review of the Government’s budget watchdog

The TUC has strongly warned against the OBR’s discredited assumptions which risk being a “strait-jacket on growth” and urged modernisation of the watchdog.

The union body says the OBR’s expected downgrade to productivity forecasts is “a damning indictment” of the Tories’ economic legacy, and the last government’s persistent failure to rebuild Britain after the global financial crisis. But, calling for an urgent review into whether the OBR is fit for purpose, the TUC says the budget watchdog itself cannot escape questions on how it got previous predictions so wrong, having effectively been “cheerleaders for austerity”.

The union body adds that the budget watchdog risks being a drag on growth because of its flawed processes and discredited view of the way our economy works.

At the Budget, the OBR is expected to say that the economy will not grow as quickly as previously thought, creating a hole for the Chancellor to fill in the public finances. In the face of the expected forecast funding shortfall, the Chancellor faces a choice about whether to raise taxes or cut public spending.

The OBR’s assumptions of future growth should not be accepted unchallenged, the TUC warns.

Fair taxes

Ahead of the Budget, given the likely forecast changes, the TUC is encouraging the Chancellor to stay the course on investment by ensuring those with the broadest shoulders pay their fair share in taxes to:

• Protect and sustain investment in the NHS and public services, and infrastructure;
• Support people with the cost of living by bringing down household bills;
• Address the UK’s child poverty emergency, scrapping the two-child benefit cap to improve the lives of millions of children and immediately lift hundreds of thousands out of poverty.

The TUC warns cutting spending is “not acceptable” – public services have already been cut to the bone, and cuts would make our economic problems worse, taking money out of our economy just when it’s needed most.

Questions to answer

The OBR has serious questions to answer, according to the TUC, which says the watchdog “cannot escape scrutiny” for its part in setting up the Chancellor’s difficult choices. The TUC is calling for an urgent review into the role and remit of the OBR which looks at:

• The modelling and assumptions behind the OBR’s forecasts;
• The role a fiscal watchdog should play in modern Britain;
• The short-termism of the OBR’s forecast period and how that impacts on its assessments;
• The rigid processes and rules which govern the OBR;
• The evidence of the last 14 years of the OBR’s impact on government policymaking.

Reviewing our institutions like the OBR is not unusual, and the UK is lagging behind other countries who are moving towards second generation fiscal frameworks. The IMF have shown the UK is one of only “a handful” of countries where Government hands over power to its budget watchdog for all forecasting.

As a first step, the TUC is calling for forecasts to be moved to once rather than twice a year, to slow the “rollercoaster of speculation” and patchwork solutions to fill forecast funding gaps.

Unaccountable 

The union body accuses the budget watchdog of “dangerous groupthink”, as it says huge judgements on what the government of the day can tax and spend are being made by the “unaccountable OBR” which has an outsized say across government policy.

The TUC argues the body was set up by George Osborne to reinforce his austerity policies, and its models are built on a discredited views about the way our economy works, which discourage investment, slow growth, and end up leaving working people with less money in their pockets.

Their discredited assumptions are being compounded by rigid rules about how the OBR operates.

The TUC points to the “serious errors” of process in the run up to this year’s budget. The timing of the OBR’s productivity review, after the previous Government left office and after the current Government has already set out its spending plans, looks set to create unnecessary uncertainty.

The OBR failed to pick up on the limits of the approach of successive Conservative governments to the economy, and now risks being a drag on this government’s ability to deliver growth.

The TUC says evidence from the last 14 years shows:

• The OBR’s short-term analysis doesn’t recognise the value of long-term investments. The TUC says that successful initiatives like Sure Start, which have saved the public finances billions by improving education and employment outcomes for kids across the country, would never have been supported by the OBR.
• Similarly, its 5-year horizons don’t account for long-term challenges like climate change, so the positive impact of government investment to support people to move to electric vehicles or better insulate their homes isn’t taken into account.
• The OBR relies on discredited theories about the impact of public spending on the economy – like thinking public spending puts off – or crowds out – private spending. With the economy in the doldrums, an increase in government spending will boost confidence and encourage the private sector to invest.

Taken together, the TUC says the OBR’s approach risks reinforcing periods of low growth when spending is needed to revive the economy. They add that the OBR’s broken model encourages “whack-a-mole” fiscal policy – and warns that even with tax rises at this Budget, without significant reform of the OBR, there is a real risk that the rollercoaster of uncertainty will continue in budgets ahead.