OBR head's resignation leaves potential landmines for Reeves
The resignation of Richard Hughes, Chairman of the Office for Budget Responsibility (OBR), was immediately triggered by the early publication of Budget estimates—an error traced to a junior staff member. However, the decision was also influenced by a deeper, ongoing tension between the OBR's independent role and political pressures from across the spectrum.
The Search for a Successor
The immediate challenge is for Shadow Chancellor Rachel Reeves to find a respected and credible economist to replace Hughes.
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The new head must fit the mould of a fiercely independent bean counter.
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Any deviation from the normal model of OBR independence will be closely monitored by the markets, as perceived political interference could damage market reputation and increase UK government borrowing rates.
Points of Contention and OBR Independence
Mr. Hughes was a ferocious defender of his organisation's independence, resisting political attacks from the right, left, and centre.
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Pro-Growth Policies: A point of contention was Mr. Hughes' refusal to "score" the government's pro-growth policies until they reached the $0.1\%$ of national income threshold required to demonstrate an effect on the economy.
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Political Pressure: There has been a "drumbeat of noise" regarding the restrictions the OBR places on the freedoms of elected governments. The OBR was variously viewed as an "arm of a woke deep state" or an "agent of austerity."
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Balancing Act: While there is political pressure to deviate from the normal model, any suspected interference with the OBR's independence carries the risk of market destabilisation.
Changes to the Budget Cycle
The Chancellor has already confirmed planned changes to the Budget cycle, aiming to only respond to the OBR's forecasts once a year.
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The OBR will still deliver two complete economic and fiscal forecasts (five years out, twice a year, in the autumn and spring).
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However, the government will not feel obligated to respond with policy changes to the spring forecast. This spring update will be positioned as more of a "health check" on the economy and public finances, without any loss of transparency in the forecast paper itself.
Challenges for the New OBR Head
The new OBR leadership will face critical issues:
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Surplus Spending: The precise details of the OBR's forecast will matter. If the spring update shows a noticeable rise in the public finances, the Chancellor may face significant pressure to spend the surplus ahead of critical local elections.
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Forecasting Specifics: The OBR had recently made difficult forecasts regarding the cost of special education needs in England and had projected a rise in the UK economy due to AI use by the end of the decade—both areas that caused political friction.
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Scope and Size: Mr. Hughes suggested the 35-member forecasting group was too large, emphasising the need for the government to narrow priorities.
Mr. Hughes reiterated the OBR's statutory role:
"The powers given to us by Parliament in an Act of Parliament are those that have been promised to us... All we do is produce a baseline forecast, cost government initiatives that they send to us, and we give them an evaluation about whether we're on target to meet those goals."
He also stressed that Chancellors set their own targets and policies, and "if they don't want to achieve their goals, they can change them," a practice done in the past.
Richard Hughes' five-year tenure spanned five Chancellors. His resignation creates a crucial opportunity for the government to establish a new working relationship with the OBR, but this comes with the price of potential market scrutiny.
