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The UK economic watchdog has said Rachel Reeves was not misleading by warning of fiscal challenges ahead of the Budget, saying the margin against her borrowing rules before last week’s tax rise was “very low”.
David Miles, a member of the Office for Budget Responsibility’s steering committee, backed the chancellor’s fiscal warnings, a day after the watchdog chair Richard Hughes resigned under pressure from the government over IT failures that made his forecast available online before the budget was delivered.
Miles also told MPs on Tuesday that the OBR had raised concerns with the Treasury ahead of the Budget about persistent leaks to the media, suggesting that the OBR’s forecasts were “extremely volatile” and that it “came in at the last minute to help out with some money”.
Miles told the House of Commons Treasury Committee that Reeves was not wrong to say in early November that the public finances had come under pressure.
“I don’t think it was misleading for the Chancellor to say earlier that week that the fiscal situation was very challenging,” he said.
However, it is not true that the OBR’s forecasts in early November had improved – as some media reports suggested in the wake of the Chancellor’s decision to abandon the proposal to raise income tax rates.
Miles said, “There seems to be a misconception that somehow there was some good news – I’m not sure where it came from. It just didn’t exist.”
At the end of October the OBR told Reeves privately that it had a margin of around £4 billion against its key fiscal rule, before considering any policy decisions made by the government.
Miles said this was a very low buffer and would have been destroyed by the £7 billion a year cost of the previous government’s U-turn on welfare spending. He also said the government needs to create more room for fiscal error.
Tensions between the OBR and the Chancellor have come to the fore in recent days after the budget leak error and MPs have been separately told how its forecasts have changed.
Hughes, who has led the OBR since 2020, was originally scheduled to attend Tuesday’s parliamentary hearing but did not attend following his resignation on Monday.
Instead, the OBR was represented by Miles and Tom Josephs, the other remaining member of the watchdog’s steering committee.
In a highly unusual move, Hughes wrote to the Treasury committee on Friday asking for the facts to be revealed about how the OBR’s fiscal forecasts had developed during the November 26 budget turmoil.
Miles said the letter aimed to “dispel misconceptions about what the OBR wants the government to do” – for example by basing its forecasts on gilt prices in a week when they were lower.
Miles said the watchdog also wanted to clarify that it had not made significant changes to its forecasts “through its own erratic behavior” as the process unfolded.
“There was a lot of information being published in the press that probably wouldn’t normally be out there, and it was, from our perspective, not particularly useful,” he said.
Miles stressed that the OBR is “not at war with the Treasury” while expressing optimism that the pre-budget process will be smoother in future.
Miles also defended the timing of the OBR review of the UK’s productivity outlook, which resulted in a large decline in growth and hit the public finances, although this was offset by other forecast changes.
Prime Minister Sir Keir Starmer suggested on Monday that it would make more sense to conduct the review at the end of the Conservative government in 2024.
However, Miles said it would be very difficult to reach a conclusion on the underlying trend in productivity so soon after two major shocks to the economy from the COVID-19 pandemic and the energy crisis.
