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A senior figure at the UK’s Office for Budget Responsibility (OBR) has stated that he does not believe the Chancellor of the Exchequer was being misleading when describing the state of public finances as “very challenging” in the lead-up to the Budget.
Professor David Miles of the OBR told Members of Parliament that Rachel Reeves’ comments, made before announcing her tax and spending plans, were “not inconsistent” with the situation she faced.
Reeves has refuted claims that she misled the public regarding the nation’s financial situation, following the OBR’s economic forecasts which indicated a more positive outlook than previously anticipated.
However, Professor Miles noted that despite the forecast, the Chancellor still confronted a “very difficult Budget and very difficult choices.”
He added that the OBR raised concerns with Treasury officials regarding media leaks leading up to the Budget, stating: “I think it was clear that we didn’t find this helpful. We made that clear.”
Professor Miles explained that a letter released by the OBR outlining the timings of its pre-Budget forecast rounds was intended to correct “misconceptions” in the media, which suggested the OBR was either acting as the government’s “patsy” or that its forecasts had been “all over the shop.”
He clarified that the watchdog was not “at war” with the Treasury.
The OBR is responsible for assessing the health of the UK’s economy and, while operating independently, works in close collaboration with the Treasury.
Professor Miles appeared before the Treasury Select Committee alongside fellow OBR official Tom Josephs.
The OBR’s former chairman, Richard Hughes, did not attend following his resignation on Monday due to an error on Budget day which led to the early publication of the watchdog’s official forecast document.
A political dispute has emerged regarding the information shared with the public in recent weeks concerning the state of the economy and the choices needed to be made by the Chancellor.
Last week’s Budget included a total of £26 billion in tax increases, with £8 billion expected to be raised by extending the freeze on income tax and National Insurance thresholds for an additional three years. The two-child benefit cap was also abolished.
Leading up to the Budget, Reeves repeatedly mentioned a downgrade to the UK’s predicted economic productivity, potentially hindering her ability to meet borrowing rules, fueling speculation about potential income tax rate increases – a move that would breach a Labour manifesto pledge.
On November 4th, during a rare pre-Budget speech at Downing Street, she warned that the UK’s productivity was weaker “than previously thought” and that this had “consequences for the public finances too, in lower tax receipts.”
However, it has since been revealed that the OBR, responsible for assessing the government’s tax and spending policies, informed the Treasury on October 31st that it was on track to meet its main borrowing rule by £4.2 billion. This was attributed to the productivity downgrade being offset by higher wages, which increase government tax revenues.
Reeves did not mention the offset to the downgrade by larger tax revenues in her November 4th speech and subsequent press conference.
When asked whether the impression provided by the Chancellor during her press conference was a “false one,” Professor Miles told the committee: “I don’t think it was misleading, for my own view, for the Chancellor to say that the fiscal position was very challenging at the beginning of that week.”
He further stated: “My interpretation was, and others might interpret differently, that the Chancellor was saying that this was a very difficult Budget and very difficult choices needed to be made.”
“And I don’t think that that was in itself inconsistent with the final pre-measures assessment we’d made, which, although it showed a very small positive amount of so-called headroom, it was wafer thin.”
The Conservative party has claimed that Reeves gave an overly pessimistic impression as a “smokescreen” to justify tax increases in order to increase welfare spending, with party leader Kemi Badenoch claiming she “lied to the public.”
The £4.2 billion buffer was smaller than the £9.9 billion Reeves had allocated at the previous Budget, and Professor Miles stated that it still “posed a significant” challenge to the government, which aimed to increase the figure overall.
The so-called headroom that Chancellors have historically allocated – essentially a buffer to fall back on – has been smaller in recent years. Prior to November 2022, Chancellors typically aimed for a £20-£30 billion buffer.
Professor Miles also informed MPs that the OBR was not seeking for the £4.2 billion surplus in the forecast to be interpreted as “this is very, very good news, there is no hole to fill – as people were saying.”
He stated that this was because, while the number was positive, it was so “by a tiny margin.”
Professor Miles added that the £4.2 billion buffer would also have been reduced to minus £3 billion, because the OBR’s forecast did not account for the U-turns made by the government regarding welfare and winter fuel payments.
Mr. Josephs additionally apologised to MPs for the early release of the OBR’s forecast document, which effectively confirmed several new Budget measures before the Chancellor officially announced them.
On Monday, Richard Hughes resigned from the OBR, stating that he took “full responsibility” for the issues identified in the OBR’s investigation into the mistake, which it labelled the worst failure in the organization’s 15-year history.
Mr. Josephs stated that the OBR would implement the recommendations arising from the investigation.
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