LONDON — Tight spending constraints have been causing Keir Starmer’s government all manner of headaches. Now his own troops want a scaling back of the official forecaster they believe holds too much of a stranglehold on his administration.
In an intervention to POLITICO, an influential grouping of Labour MPs are on Sunday night urging the government — bound by strict fiscal rules and scrutinized by the Office for Budget Responsibility (OBR) — to slash the number of fiscal forecasts the watchdog issues and to stop treating its estimates as a “crystal ball.”
It comes hot on the heels of a debacle over welfare spending that some in the party believe was driven by concern for balancing the books over sound policymaking.
Jo White, the leader of the Red Wall group, which represents Labour MPs in highly-competitive seats in former industrial heartlands, said: “Red Wall constituents are crying out for change and there is so much potential in what the government is doing — be it in our 10 year NHS plan, infrastructure investment or Industrial Strategy.
“But to deliver national renewal we need policy and fiscal stability and the OBR has a vitally important role to play in that. Fine tuning policy to fit a central estimate — that we know will be inaccurate — is not the way to do that. To recognize the value of the OBR, we must acknowledge their limitations.”
Welfare row
The OBR was set up in 2010 by Britain’s post-financial crisis Coalition government to give independent analysis of Britain’s public finances. Every time the chancellor makes a set-piece financial statement to the Commons, the forecasts of the watchdog are pored over and their headline figures tend to set the narrative on the state of the economy.
Rachel Reeves, who has been dubbed the “Iron Chancellor,” set herself tight fiscal rules — policed by the OBR — in a bid to build Labour’s credibility in opposition.
Labour MPs pushing for change are particularly exercised by the OBR’s role in the recent welfare row. A spring forecast from the watchdog said the amount of budgetary headroom left to Reeves had fallen dramatically since the prior forecast —largely because of higher debt interest payments and weaker-than-expected tax receipts.
It was this change that explained the scramble by Reeves to billions of pounds in savings from the country’s ballooning disability benefits bill. Without the proposed cuts, Reeves would’ve been seen as on course to miss one of her “iron clad” fiscal rules: that her budget should be on course to at least balance the books by 2029/30.
Labour MPs who came into politics raging against the austerity imposed after the 2008 financial crisis had no interest in what they saw as balancing the books on the backs of the U.K.’s most vulnerable, and threatened a mass rebellion that removed the vast majority of the planned savings. A slow-motion series of U-turns afterwards appeared to be a desperate attempt to get the OBR to still “score” the hoped-for changes.
Mountain to climb
The Red Wall MPs who want a rethink have enlisted Andy MacNae — an avid mountaineer and adventure sports entrepreneur who entered Parliament at last July’s general election — to outline how the OBR’s remit should be altered.
Rather than two forecasts a year, its economists should produce just one, the MP for Rossendale and Darwen argues, and this should only come alongside the chancellor’s budget, not at another fiscal event.
MacNae also calls for single-point estimates of the chancellor’s “fiscal headroom” to no longer be treated as “gospel” across government. Instead, he argues, the leeway against the Treasury’s budgetary rules should be replaced by ranges and probabilities to prevent a focus on what he sees as misleadingly precise figures. This would amount to a big change in how they’re perceived.
MacNae told POLITICO: “OBR forecasting is an invaluable tool that must be used properly. It provides a rough guide — a well-informed guess — as to where the economy might be in four years’ time. But the OBR has never claimed to have a crystal ball and we shouldn’t treat it as if it does.
“This is especially the case regarding the ‘central estimate’, which seems to be given far too much weight in influencing fiscal policy, despite the OBR themselves recognizing that it’s ‘almost certain to be wrong‘.
“We have to understand that these are useful but limited forecasts, which should help to guide our decisions, but not determine them.”
MacNae points out that OBR forecast published on March 26 didn’t take into account the government’s £113 billion increase in infrastructure spending, measures in its industrial strategy or its investment in social housing — nor did it account for Donald Trump’s looming tariffs or new trade deals. At best, he argues, they are incomplete snapshots of the public finances — and at worst, they age too quickly to be useful.
In a piece in the left-leaning New Statesman, MacNae puts it in colorful terms, arguing that nobody would cancel a wedding months out because of a forecast of drizzle. “Instead, let’s stay alert, carry an umbrella when needed, and remain flexible,” writes MacNae — who once co-authored a book on mountain safety.
Reeves argues that altering the checks and balances on a government are “risky,” not least because of the importance of the bond markets. But she did say in an interview with the Guardian that she was looking “seriously” at recommendations by the International Monetary Fund about better fiscal policymaking.
A Treasury official, granted anonymity to discuss internal government deliberations, suggested Reeves is considering asking the OBR to only assess compliance with the fiscal rules once a year, while still requesting their fuller forecasts.
Ben Zaranko, associate director at the Institute for Fiscal Studies think tank, agreed that a move away from debates around “spuriously precise” estimates of headroom and the “constant policy tinkering” that results from them is needed.
But he added: “That’s not the fault of the OBR, who bring transparency and credibility to the process, and do what has been asked of them by the government. Seeking to reduce the amount of transparency, by moving to one forecast per year rather than two, is not a solution to the underlying problem.”
A Treasury spokesperson stood by Reeves’ fiscal rules as the “non-negotiable” basis of economic stability.
“The first bill passed by this government included the fiscal lock, which prevents the side-lining of the OBR and demonstrates that this government will never play fast and loose with public finances,” the spokesperson added.
That bill — nicknamed the “Liz Truss Bill” because of its attempt to score political capital on the former prime minister’s disastrous handling of the economy — only discusses requiring OBR forecasts on major taxation and spending announcements.
Reeves has committed to only holding one of these a year — so the changes being pushed by Labour MPs wouldn’t require legislation.
The fiscal rules may be non-negotiable right now, but how and when they’re actually measured appears very much on the table.
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