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The resignation, prompted by the premature release of Budget details, marks the start of a new chapter for the Office for Budget Responsibility (OBR). The Chancellor now faces critical decisions regarding Richard Hughes’s successor.
A primary task for Rachel Reeves will be to identify a highly respected and credible economist to lead the OBR.
Several potential candidates fit the profile of a fiercely independent fiscal watchdog.
The markets will be closely monitoring the selection process for any deviation from established norms, despite existing political pressures.
One point of contention has been the OBR’s perceived reluctance to fully acknowledge the government’s “pro-growth” policies.
Mr. Hughes maintained that policies would only be scored if they had a significant economic impact, setting a threshold of 0.1% of national income, which none met.
However, a delicate balance must be struck.
Any perception of interference with the OBR’s independence could erode market confidence and potentially increase the UK government’s borrowing costs.
Speaking with the outgoing chairman on the evening of the Budget, it was clear that he was deeply concerned about his organization’s responsibility for the early dissemination of confidential fiscal information.
While Mr. Hughes’ decision to resign, due to an error attributed to a junior staff member, came as no surprise, it was not his only concern.
He was a staunch advocate for the OBR’s independence from political and ministerial influence, regardless of the ideological leaning. This was evident during the Liz Truss mini-budget episode, and more recently, too.
Criticism had been mounting from various political factions regarding the constraints the OBR’s framework placed on the policy flexibility of elected officials.
The OBR has been characterized in some quarters as an instrument of a “woke deep state,” while others view it as an “agent of austerity.”
Tensions surrounding the Budget have been present for some time.
Changes had already been planned, including the Chancellor’s announcement that she would respond to the OBR’s forecasts only once a year.
“We’ll still be producing two full economic and fiscal forecasts looking five years out, twice a year, now and in the spring,” Mr. Hughes stated.
“But with this change of legislation, the government doesn’t feel obliged to respond to those forecasts with policy in the spring. It’ll be more like a health check on the economy and the public finances.
“There’ll be no loss of transparency from the forecast documentation that we’ll produce.”
The specifics of the new approach to OBR forecasts are crucial. If the public finances improve significantly in the spring, will the Chancellor refrain from allocating any “surplus” funds ahead of critical local elections?
Around the Budget, the OBR factored in an economic boost from the adoption of AI by the end of the decade. The OBR also utilized new powers to initiate a complex costing analysis of rising special educational needs expenditures in England, drawing criticism from some Cabinet ministers.
To some, this demonstrates the OBR’s unique ability to focus government priorities. Mr. Hughes refuted the notion that his 35-member forecasting group wielded excessive power.
“The powers given to us are those given to us by Parliament in an Act of Parliament, and that’s to produce a forecast. Chancellors set their own targets. They set their own policies. Chancellors are in charge of £1.5 trillion worth of revenue and £1.5 trillion worth of spending.”
“If they don’t want to meet their targets, they can change them, which we’ve seen chancellors do in the past as well.
“All we do is produce a baseline forecast, cost government policies when they give them to us, and we give them an assessment about whether we’re up there, in line and on track to meet those targets.”
Given the government’s challenges leading up to this Budget, Mr. Hughes may possess key insights into the timing of various claims regarding the state of public finances, which he may take with him on gardening leave.
His scheduled appearance before the Treasury Select Committee this morning has been cancelled. He acknowledged that the publication of his clarification table on Friday, detailing the evolution of forecasts, was unconventional.
During his five years at the OBR, Richard Hughes served under five chancellors, fostering relationships aimed at promoting UK economic stability.
The new relationship with a different OBR represents both an opportunity and a significant risk for the government.
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