The establishment of the Office for Budget Responsibility (OBR) in 2010 was heralded as a major change in UK economic governance. In the past, HM Treasury oversaw the UK’s economic and fiscal forecasts, exposing these projections to pressure from Chancellors of all political persuasions. In contrast, the OBR would provide independent and objective scrutiny of the public finances. At a speech to mark the OBR’s creation, then-Chancellor of the Exchequer George Osborne claimed that the new institution meant “There will be nowhere to hide the debts, no way to fiddle the figures, and no way of avoiding the difficult choices that have been put off for too long” (Osborne 2010). Yet from its inception onwards, both left-wing and right-wing critics have viewed the OBR as far from neutral, complaining that its forecasts are inherently biased in favour of contractionary government policies, institutionalising austerity to the detriment of economic growth (e.g. Pettifor 2017; Truss 2023). Ben Clift’s masterful study, The Office for Budget Responsibility and the Politics of Technocratic Economic Governance (2023a), offers a nuanced evaluation of these claims. It reveals a reflexive, open-minded organisation that takes its independence and impartiality seriously—while still harbouring institutional preoccupations and methodological predilections that influence its forecasting activity. Building on Clift’s work, this symposium article considers whether the OBR is inherently biased towards austerity and (fiscal) conservatism, bound to “clip the wings” of a more expansionary agenda (Clift 2023b), or whether OBR scrutiny is compatible with more radical changes in the UK’s political economy.

The inherent conservatism of the OBR

It is perhaps unsurprising that an organisation created to evaluate fiscal policy, by a Chancellor pursuing a particular fiscal policy agenda, might be expected to look favourably on that agenda. And there are certainly ways in which the OBR institutionalises the Osborne era approach to the public finances. Its focus on monitoring debt and deficit levels over the short- to medium-term implies that these are performance indicators that needed to be carefully scrutinised, implicitly privileging them above other measures of public sector performance such as economic growth, capital investment or inequality. As an organisation whose very existence presupposed that high levels of public debt were a risk that needed to be mitigated, the OBR helped to legitimise Osborne’s attacks on Labour politicians who had presided over massive increases in the national debt following the Global Financial Crisis (Clift 2023a, pp. 41–46).

Admittedly, the OBR itself had little say over its structural role, having been set a clear and narrow mandate by government, nor did it contribute directly to the political narrative that was spun around it. Indeed, the OBR has been quick to correct misleading government invocations of its authority, and its own reports refuted George Osborne’s claim that Labour Party profligacy was responsible for UK debt levels (Clift 2023a, pp. 87, 43). Nevertheless, particularly in its early years, OBR analyses focused the attention of policy elites and the public alike on questions of public debt and fiscal rules, as opposed to deeper questions about flaws in the UK’s variety of capitalism. As Berry and Lavery (2017) point out, breaking fiscal rules does not lead to the failure of growth models: rather, fiscal rules are broken when growth models fail.

The question of whether the OBR itself is methodologically and/or ideologically predisposed to favour certain policy settings is more complex. In his discussion of the mathematical model that underpins the OBR’s economic predictions, Clift takes us on a fascinating tour of modern forecasting practices, meticulously documenting the choices made by modellers, the assumptions that these choices entail, and the often similarly plausible alternatives that these choices foreclose. Informed observers are wont to remark that economic prediction is more art than science, but Clift goes much further, leading us into the artist’s atelier, walking us through the range of tools and techniques at forecasters’ disposal while offering critical insight into how they affect the final product. From high-level theories of growth and understandings of the international political economy down to the minutiae of output gaps and trend productivity levels, Clift deconstructs the OBR’s thinking piece-by-piece.

The OBR revealed by Clift’s book is an open-minded and intellectually curious community of economists. They are alive to a plurality of possible scenarios and the uncertainties surrounding their relative likelihood. However, they are nonetheless institutionally required to collapse this range of possibilities into a single central scenario, making a series of highly contestable assumptions along the way. Some of these assumptions are hardwired into the economic model that underpins their forecasts, a structural econometric model that assumes productivity changes are largely exogenous and demand management has little impact on long-term growth (Clift 2023a, pp. 108–109). These model-level assumptions do indeed have fiscally conservative implications. They treat both supply-side reforms (whether tax cuts or social investment in skills, infrastructure, etc.) and fiscal stimulus primarily as fiscal costs (manifesting as higher deficits, unless offset by revenue increases or spending cuts). Their potential effects on long-term growth rates are downplayed. Yet, Clift is also clear that the staff of the OBR are not ideologically wedded to the assumptions encoded in their model. He notes that the organisation has become increasingly sympathetic to the idea that crises can cause long-term scarring to economic output, legitimising a more muscular approach to fiscal stimulus (DeLong and Summers 2012; Teulings and Baldwin 2014). During the COVID-19 pandemic, the OBR repeatedly warned of damage to the productive capabilities of the UK economy if policymakers failed to mitigate the impacts of the crisis on households and businesses. Interestingly, these insights have been incorporated into OBR forecasting not by respecifying the model, but rather by adjusting inputs into the model (for example, by revising assumptions around trend productivity growth). The fact that the OBR’s model is blind to policy-induced changes in the trajectory of economic growth does not mean that the OBR’s forecasts necessarily exclude the possibility of such changes—a distinction that critics of the OBR often fail to grasp (e.g. Truss 2023).

Nevertheless, OBR staff are reluctant to alter inputs into their model until changes in productivity and growth trends are well established (Clift 2023a, pp. 141, 152–153). As a result, they were relatively slow to acknowledge the scarring caused by the Global Financial Crisis compared to organisations such as the IMF and the OECD. It follows that the OBR is unlikely to recognise the growth benefits of interventions such as anti-cyclical stimulus or supply-side reform before they are evident in the data, potentially several years after the policies that produced them. Similarly, the OBR will not acknowledge growth costs of pro-cyclical austerity, social disinvestment or other ill-conceived policy measures until after the fact. OBR staff hope that this stance will keep them out of highly contentious debates about the dynamic impacts of social investment or tax cuts. However, the judgement of “minimal effect” still involves taking a position with serious economic and political ramifications (Clift 2023a, pp. 98–99, 125), however much the OBR might emphasise the uncertainty that surrounds their judgements.Footnote 1

In addition to this status quo bias, it is an open question as to whether OBR staff are ideologically distrustful of deficits, subscribing to a modern-day version of the “Treasury view” that so frustrated Keynes back in the 1920s and 1930s (Peden 1984). At the time of the OBR’s creation, senior leaders in HM Treasury and the Bank of England were enthusiastic advocates of fiscal consolidation rather than stimulus (Brown 2017; Davis 2022). They dismissed out of hand the possibility that excessive recovery-suppressing austerity posed the greater economic danger (as argued by e.g. Balls 2010; Krugman 2010; Wren Lewis 2011). It is possible that OBR staff (many of whom were transferred across directly from Treasury) shared this perspective, though the interplay between individuals’ ideas and institutional constraints is difficult to unpick. As Andy King, then a member of the OBR’s Budget Responsibility Committee, remarked to Clift, “the case for activist fiscal policy in a low interest rate environment—well obviously the legislation does not allow us to take a view on that” (Clift 2023a, p. 125).

Irrespective of whether its anti-deficit bias is institutional or ideational in origin, the OBR nevertheless seems favourably disposed towards deficit reduction under most circumstances. This predilection is illustrated by the Office’s approach to the era of “polycrisis” (Tooze 2021). Perhaps unsurprisingly for an organisation whose first twelve years of existence have encompassed ongoing fallout from the financial crash, Brexit, the COVID-19 pandemic and two Russian invasions of Ukraine, the OBR is alert to the possibility that crises are not random exogenous shocks (as most economic models, including their own, assume) but might instead be increasing in scale and frequency. Yet the OBR’s response to crises is generally to call for a swift return to a more “sustainable” fiscal stance, to restore “fiscal space” to counter the next emergency (Clift 2023a, pp. 215–218). In the words of Charlie Bean, member of the OBR’s Budget Responsibility Committee from 2017 to 2021, “Broadly speaking, you want to have debt-to-GDP ratios falling at good times to make room for the bad times” (Clift 2023a, pp. 215–216). Although it is extremely helpful for governments to be able to borrow in the face of crises, preparation for the bad times is not solely a matter of inspiring market confidence in the public finances. It is also a product of, inter alia, a better-equipped military, a better-skilled workforce, better-quality infrastructure and a more productive economy. These forms of resilience building may come at the cost of short-term reductions in debt-to-GDP ratios, even in the good times. Over the medium- to long-term, a faster growing and more robust socioeconomic model might inspire greater levels of market confidence and thus leave governments better able to borrow when the next crisis hits.

The unintended radicalism of the OBR

Institutionally, methodologically and perhaps also ideationally, then, the OBR possesses an inbuilt bias towards fiscal “prudence” and a corresponding scepticism of public spending plans that justify present-day costs in terms of future economic gains. As such, it does seem to embody the pro-austerity preferences of the Osborne era. However, to view the OBR in these terms is to downplay the flexibility it has already demonstrated over its short life, as well as to mistake the performance of fiscal rectitude for the reality of post-2010 fiscal policymaking (Stanley 2016). For all the rhetoric surrounding the constraints introduced by the creation of the OBR, “politicians who introduce disciplinary economic policy rules also look to exert their economic sovereignty, spend freely, and escape their self-imposed shackles” (Clift 2023a, p. 1).

Perhaps the most obvious way in which the OBR lacks the ability to constrain policymakers is in its lack of control over the UK’s fiscal rules, the content of which can be specified and respecified at will by the government of the day. As of January 2023, the government has altered the fiscal rules contained in the Charter for Budget Responsibility on six occasions since the first Charter was introduced in April 2011: an average of more than once every two years (Keep 2023).Footnote 2 Successive Chancellors have revised the rules when it became apparent that they were no longer on track to satisfy existing targets. Clearly, fiscal rules that can be regularly broken do not impose a great deal of constraint on government policy. Indeed, the latest iteration of the Charter effectively makes rule-breaking the rule, only committing government to achieving its targets “by the fifth year of the rolling forecast period”, permanently deferring the moment of fiscal consolidation. When rolling targets were first announced in October 2021, the OBR drily noted that “the date for meeting them never arrives… history tells us that Chancellors tend to take advantage… of the additional year to meet their targets by loosening fiscal policy, while planning a sufficiently large fiscal tightening to hit the target in the target year” (OBR 2021b, p. 189). As such, however, these rules do permit governments to engage in spend-to-save and/or spend-to-grow policies. Although the OBR is unlikely to accredit these initiatives with any growth benefits upfront, by the time the original target year arrives there may be enough data to justify an upgrading of the UK growth trajectory. This may show the policies paying for themselves retrospectively, removing the need for the planned fiscal tightening.

Repeated incremental relaxations of the UK’s fiscal rules do not appear to have had a meaningful impact on the UK’s cost of borrowing or its ability to access financial markets. Despite multiple downgrades in the UK government’s credit rating, the cost of public borrowing continued to fall throughout the first decade of the OBR’s existence, with the interest paid on new gilt issuances hitting historically low levels by the late 2010s and early 2020s. Although upward pressures on gilt yields were evident from early 2022, reflecting the return of inflation and the changing global economic and geopolitical environment, it took the Truss-Kwarteng “mini-budget” later that year to trigger a significant reappraisal of the UK’s creditworthiness. The mini-budget episode has done much to burnish the reputation of technocratic economic governance and the OBR in particular, so it is worth recalling precisely how this fiscal event deviated from the wider pattern of rule-breaking that preceded it. Procedurally speaking, rejection of short-term budgetary constraints was not the differentiating factor. These were effectively abolished in 2021, when three-year rolling targets for budgetary balance were introduced by then-Chancellor Rishi Sunak. What set Kwasi Kwarteng’s September 2022 “Growth Plan” apart was that, rather than respecifying the government’s fiscal rules to accommodate a series of largely unfunded tax cuts, these policy changes were presented to the world without any accompanying economic forecasts and without any evaluation of whether they satisfied the government’s fiscal rules whatsoever. While markets had tolerated fiscal rule-breaking, it transpired they were less favourably disposed towards wilful blindness. Although announcing a substantial fiscal loosening at a time of mounting inflationary pressures and heightened economic uncertainty was always likely to provoke a negative market reaction, forecasts or no forecasts, substantive engagement with OBR estimates and evidence-based grounds for divergence might have allayed doubts about government competence (to some degree, at least). As it was, the government’s own analysis declared the planned growth of the Growth Plan to be “purely illustrative” and explicitly “not… an assessment of what effect the policy package will have” (HM Treasury 2022, p. 27).

Besides altering the UK’s fiscal rules to provide more space for an expansionary agenda (or simply taking advantage of the already-lax fiscal rules currently in force), future governments could also respecify the accounting conventions that underpin these fiscal rules. Economists have long lamented the fact that fiscal frameworks frequently skew public investment towards physical capital (new buildings, new railways, new IT systems) to the detriment of human capital (Balassone and Franco 2000; Blanchard and Giavazzi 2004; Emmerson and Stockton 2021). A significant proportion of spending on education, skills and healthcare is treated as current expenditure for national accounting purposes, despite potentially boosting output levels for many years to come, and numerous fiscal frameworks (including several of the UK’s post-2010 fiscal mandates) subject current expenditure to stricter control than capital outlays. Redrawing the boundaries of the current-capital divide (for instance, by treating part of schools’ salary costs as capital spending) could create fiscal space for a more expansive programme of social investment.

An anti-austerity government might also expand the OBR’s remit, requiring it to take a more holistic approach to the UK’s public finances. Even without breaking the OBR’s omertà on assessing the long-term growth benefits of public spending on healthier, better-educated citizens or superior transport infrastructure, it would be a relatively straightforward matter to incorporate a crude and mechanical measure of depreciation into the Office’s medium-term fiscal forecasts. This would expose when governments are pursuing fiscal consolidation (or creating room for tax cuts) by lowering levels of capital investment, thereby shunting repair and replacement costs on to their successors—as, for example, when the Treasury allowed departments to divert money from capital budgets to fund day-to-day spending from 2010 onwards (Atkins et al. 2020). More controversially, fiscal forecasts might recognise costs associated with present-day inaction on climate change. In its reporting on long-term fiscal risks, the OBR has already noted that delaying the net-zero transition could result in higher public spending and lower growth than acting early (OBR 2021a; Clift 2023a, pp. 240–243)—though it is characteristically keen to emphasise the uncertainties around such projections.

Far from locking in austerity, then, the OBR may yet create an opening for a more radical change in the UK’s political economy. On several occasions over the last four decades, governments have portrayed themselves as sober custodians of the public finances while simultaneously weakening the national balance sheet. In the 1980s, this involved the sale of state-owned enterprises, council housing and North Sea hydrocarbons. In the 2010s, such statecraft took on a more subtle form, as fiscal consolidation was paid for in part by allowing public buildings and infrastructure to fall into disrepair, while ignoring burgeoning ecological risks. Technocratically speaking, a more holistic assessment of fiscal sustainability would be unobjectionable (if anything, it would be technically superior, meaning future governments would face credibility costs were they to resile from it). Politically speaking, however, such an assessment would make it far harder for politicians to claim the mantle of “fiscal rectitude” while running down the public realm.

Reforms centred around accounting for depreciation are admittedly less radical than requiring the OBR to divine the growth that might be unlocked by a revitalised entrepreneurial state, on the one hand, or by a buccaneering low-tax Singapore-on-Thames, on the other. Nevertheless, dragging the OBR into highly contentious debates about the dynamic scoring of supply-side reforms would be a surefire way to delegitimise it. An OBR that is forced to change its forecasting methodology (and, in all likelihood, its forecasting personnel) whenever a new partisan faction takes office might as well be reabsorbed by the Treasury and directly subjected to political control, for all the credibility it would enjoy. More to the point, it is unclear what such changes would achieve. The mutability of the UK’s fiscal rules means that the existence of the OBR does not preclude more expansionary strategies, and it is possible that the OBR could even endorse an expansionary programme of social investment as pro-growth (albeit retrospectively, once the growth benefits can be demonstrated). Admittedly, as the Truss era illustrates, financial markets might look askance at billions of pounds of speculative tax cuts or spending increases, particularly now that the era of low interest rates and low inflation appears to have ended. It is, however, difficult to blame such market reactions on the OBR.Footnote 3 If anything, they suggest that the OBR’s subtle preference for fiscal conservatism—so carefully delineated by Clift—may prove less dysfunctional in the 2020s than it was in the 2010s.