Rishi Sunak should be used to grim economic forecasts. In his two years as chancellor, he’s been warned to brace for the worst jobs crisis since the 1980s, a recession without parallel for three centuries, and the biggest shock to the public finances since the second world war.
Not everything came to pass. Extending furlough – rather than ending it early as the chancellor planned – prevented unemployment from hitting levels unseen since the days of his political idol Nigel Lawson.
Nonetheless, the chancellor is said to have taken issue with the Office for Budget Responsibility for overshadowing his spring statement with dire economic forecasts. Anonymous sources told the Times that Sunak “absolutely viscerally hates the OBR”, saying the Treasury forecaster had made unidentified “normative policy judgements” – expressing an opinion about the way things ought to be, rather than impartially describing the outlook for the economy and public finances.
Sources close to Sunak have downplayed the leak, suggesting there is no truth to the anonymous briefing. Yet it would fit with a pattern. Leaks to another friendly newspaper suggested the chancellor was frustrated with the BBC. Far from the image of the smooth operator of his early months in the job, brand Sunak’s gloss appears to be wearing thin.
There are good reasons why the tide is turning. None of those are because impartial bodies are putting an ideological spin on things. Unfortunately for the chancellor, the facts speak for themselves.
The independent Treasury economics forecaster had told the public Britain was heading for the biggest annual fall in living standards since the mid-1950s, while Sunak was far from the tax cutter he proclaimed. His spring statement peroration promised the biggest net cut to personal taxes in over a quarter of a century. The OBR verdict, however, was clear: the tax burden would rise, not fall, to the highest level since Clement Attlee was prime minister in the late 1940s.
At worst, these statements could be accused of being a bit too colourful for an impartial body. Richard Hughes, the chair of the OBR, is said by those who know him to be keen on such factoids, ensuring they are peppered through the forecasts perhaps more readily than his predecessor, Robert Chote.
However, these gobbets remain far from normative. Such terms might grab media attention and risk upstaging the chancellor. Yet clear and relatable communication is vital for conveying knotty economic matters for a broad audience. To err on the side of caution for the fragile ego of a chancellor would be folly.
Even so, it doesn’t take a colourful OBR report to know the economic outlook is unremittingly bleak, as the inevitable consequence of a once in a century pandemic is followed by war in Europe for the first time in decades.
Faced with the intense squeeze on living standards, a chorus line of charities and thinktanks have warned poverty is set to surge and questioned the chancellor’s resolve to do his utmost to help those most at risk. Andrew Bailey, the governor of the Bank of England, warned last week that the poorest in society would suffer most from the worst inflation shock since the 1970s. Yet intervening in the economy to affect distributional outcomes is not in the Bank’s remit.
The verdict from the Institute for Fiscal Studies and the Resolution Foundation could hardly be clearer: Sunak has unique powers to cushion families from the cost of living crisis, yet chose to prioritise pre-election tax cuts for tomorrow ahead of addressing problems today. If Sunak was keeping tabs on those overshadowing him by pointing this out, he would make a very long list indeed.
Without passing judgment on the desirability of his actions, the OBR said Sunak had offset only a third of the overall fall in living standards. It also said the chancellor still had £30bn of fiscal firepower left in the tank. It doesn’t take a Treasury watchdog to know more could have been done. Besides, Boris Johnson told the public just as much – admitting less than 24 hours after the spring statement that further action was warranted.
In Sunak’s defence, the watchdog warned relatively small changes to the economic outlook could wipe out this headroom within self-imposed limits for the public finances. Debt interest costs are set to surge to a record £83bn next year – making it the fourth largest item of public spending after the NHS, state pension and eduction.
It was here the chancellor perhaps wanted the public’s attention focused, in keeping with the spirit of the OBR’s creation by George Osborne as a form of straitjacket for government finances.
Set up as a police officer for ensuring deficit reduction stuck to its course in 2010, the OBR – suitably based in the Ministry of Justice just a short walk from the Treasury – was planned as a way to show Osborne was serious about balancing the books.
Some were cynical about its foundation. One senior policymaker said it was seen more as a gimmick at first, believing the Tories wanted their own equivalent of Labour granting the Bank of England operational independence in 1997.
It has faced criticism for being subject to political influence in the past, including under Sunak as recently as last year, when it was alleged to have used out-of-date economic forecasts at his request.
The times have however changed, both for the OBR and our collective economic priorities. It has grown into a vital authority on the economy, publishing clear reports when the Treasury might seek to bury bad news. Concerns today are less focused on risks to the public finances and more on outcomes for public wellbeing. “We are, frankly, never going to be Greece,” one senior policymaker told me.
As the National Institute for Economic and Social Research has argued, Britain should design a new fiscal framework to get away from a “budgetarian” approach that sees tax and spending decisions through the lens of arbitrary targets, set to arbitrary dates coincidental with elections.
In a world where too much government policy operates by the smoke and mirrors of political surprise and partial leak, the OBR is an important check and balance.
