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UK's fiscal watchdog faces scrutiny over growing influence
The Office for Budget Responsibility (OBR), once a little-known corner of Whitehall, now wields unprecedented sway over UK economic policy-raising questions about whether its unelected analysts have eclipsed the chancellor's authority ahead of Wednesday's Budget announcement.
Critics, including former Labour minister Lou Haigh and the Trades Union Congress, argue the OBR-a team of economists and civil servants-has become an "unelected institution dictating government ambition" and a "straitjacket on growth." Yet its chairman, Harvard-educated Richard Hughes, insists the body merely enforces rules set by Parliament: "The chancellor chooses the policies. If she wants to change them, she can."
From red box to blue book: How the OBR reshaped fiscal power
Traditionally, Budget Day symbolized the chancellor's control, marked by the iconic red box. Today, the spotlight falls on the OBR's blue-bound reports-a 300-page analysis of policies, costs, and forecasts that now shapes economic decisions. The irony? The OBR's influence has grown precisely because Chancellor Rachel Reeves expanded its mandate after the 2022 mini-Budget fiasco, which spooked markets by announcing unfunded tax cuts.
A new law passed in 2024 grants the OBR authority to initiate forecasts independently and scrutinize departmental spending assumptions-powers it lacked under previous governments. The move aimed to restore credibility after Liz Truss's brief premiership, but it has also intensified tensions. In September, the OBR warned that "promises made are constantly not kept" on tax and spending, prompting Reeves to retort that its role is forecasting, "not giving a running commentary."
Productivity downgrades and the £21bn black hole
Last month, the OBR quietly revised down its productivity forecast by 0.3 percentage points-a seemingly minor adjustment with major consequences. The Institute for Fiscal Studies estimates each 0.1-point drop adds £7bn to borrowing by 2029-30, potentially forcing Reeves to confront a £21bn shortfall. Such revisions underscore how OBR projections now dictate fiscal headroom, constraining even a government with a landslide majority.
"A body designed to police cuts is now being asked to referee a strategy for growth, and it simply isn't built for the task."
Praful Nargund, director of the Good Growth Foundation
Born from crisis: The OBR's origins and controversial legacy
The OBR emerged from a 2008 Conservative pamphlet, *Reconstruction*, published amid the global financial meltdown. Established in 2010 and enshrined in law by 2011, it was meant to bring transparency. Yet its charts-like one showing post-war austerity levels-have repeatedly embarrassed sitting governments. Liz Truss later claimed a "deep state" of rotating Treasury, Bank of England, and OBR officials undermined her agenda, calling them "the same people" cycling through elite institutions.
Defenders argue the OBR's independence is vital. The IMF advises boosting fiscal "headroom" to avoid market panic, a lesson reinforced when the OBR's absence during the 2022 mini-Budget triggered a gilt crisis. From this Budget onward, the OBR will assess headroom just once yearly-a nod to critics who say its constant updates fuel speculative tax-hike rumors.
The Labour paradox: Strengthening the watchdog, then chafing at its bite
Reeves's reforms were designed to prevent another mini-Budget debacle, but they've also amplified the OBR's role. Its three leaders-Hughes, Tom Josephs (ex-Treasury), and Prof. David Miles (ex-Bank of England)-command deep expertise, yet their judgments now spark internal frustration. As one Labour left-winger framed it: "The OBR was created to enforce austerity. Now it's blocking growth."
What's next: Can the OBR's power be reined in?
With markets increasingly dominated by foreign hedge funds rather than UK pension funds, the OBR's credibility remains a bulwark against volatility. Yet as other nations operate without such institutions, a debate looms: Is the OBR's technocratic rigor stifling democratic policymaking? Or is it the last line of defense against reckless spending?
For now, the chancellor's Budget will be judged not just on its policies-but on whether she can navigate the constraints of the very watchdog her government empowered.
