The difficult question about how powerful the Budget watchdog is

LONDON – In the theatre of British politics, Budget Day has long been defined by a single image: the Chancellor of the Exchequer holding the iconic red box aloft. But as the nation awaits Wednesday’s Budget, the political and financial spotlight has shifted to a less conspicuous, yet arguably more influential, blue-covered book. This document, an exhaustive analysis of the government's fiscal plans, is the work of the Office for Budget Responsibility (OBR), a small department of economists and civil servants whose pronouncements now hold the power to shape, and potentially constrain, the government’s entire economic agenda.

The growing influence of the OBR has ignited a fierce debate in Westminster and the City. Critics, including senior political figures and trade unions, argue that this unelected body has become excessively powerful, acting as a "shadow chancellor" that dictates the limits of democratic ambition. This has created a profound tension, especially for a Labour government that, in a move steeped in irony, personally authored the OBR’s enhanced authority.

The Shifting Balance of Power

The core of the controversy is whether the OBR has overstepped its intended role as an independent forecaster and become an active participant in policy-making. The charge sheet from its detractors is growing.

• An 'Unelected Institution': Lou Haigh, a former Labour Cabinet minister, has publicly criticised the OBR as an "unelected institution dictating the limits of government ambition," framing its fiscal judgments as a direct challenge to the mandate of an elected government.
• A 'Straitjacket on Growth': Just last week, the Trades Union Congress (TUC) echoed this sentiment, labelling the "unaccountable OBR" a "straitjacket on growth," suggesting its cautious forecasts stifle the investment and spending needed to invigorate the economy.

This narrative casts the OBR as the tail wagging the Treasury dog—an independent creation that now holds its creator on a tight leash. The central question is whether this new dynamic is a necessary check on fiscal profligacy or a fundamental impediment to governance.

The Watchdog's View

In response to these accusations, the OBR maintains that its role is strictly defined by law and that its power is deliberately limited. Speaking after the Spring Statement earlier this year, OBR Chairman Richard Hughes pushed back firmly against the notion that his office runs economic policy.

"The only powers we have are the ones given to us by Parliament in legislation," Hughes stated. He stressed that the Chancellor, Rachel Reeves, remains firmly in control of the key levers of economic policy.

The OBR's mandate, as outlined by its chairman, is threefold:

• To Produce Forecasts: The OBR generates independent, five-year forecasts for the UK economy and public finances.
• To Scrutinise Policy Costings: It assesses and verifies the financial impact of the government’s tax and spending decisions announced in the Budget.
• To Assess Fiscal Rules: It judges whether the government is on track to meet its own, self-imposed fiscal targets, such as those for debt and borrowing.

Hughes was clear: "The chancellor chooses the policies she wants to implement. She chooses the rules she set for herself, and if she wants to change those rules, she can change those rules."

The Ghost of the Mini-Budget

To understand the OBR’s current muscle, one must revisit the market turmoil of September 2022. The "mini-Budget" delivered by the short-lived Truss administration serves as the critical backstory.

The event, which promised the largest tax cuts in 50 years without a corresponding plan to pay for them, triggered a crisis of confidence in UK assets. A key factor that spooked investors was the government's decision to bypass the OBR and not publish an independent forecast alongside its plans.

• The Catalyst: Then-Chancellor Kwasi Kwarteng declined the OBR's offer to provide a forecast, leaving markets to guess at the long-term impact on public debt. The resulting sell-off in UK government bonds sent borrowing costs soaring and destabilised the pound.
• The Credibility Gap: The crisis demonstrated in stark terms how vital the OBR’s independent seal of approval had become for maintaining market credibility. The absence of its analysis was interpreted as a sign that the government's plans were fiscally unsustainable.

A Double-Edged Sword for Labour

The memory of that crisis directly informed the actions of the current Labour government. Upon taking office in 2024, Chancellor Rachel Reeves championed a new law specifically designed to prevent a repeat of the 2022 fiasco by cementing the OBR's independence and authority.

The legislation was a core part of Reeves's strategy to restore fiscal credibility. However, the government may now be experiencing a case of buyer's remorse as it confronts the full implications of the powers it granted.

The new law gave the OBR significant new capabilities:

• Power to Initiate: The OBR can now begin work on a forecast at its own discretion, ensuring a government can never again block its analysis during a major fiscal event.
• Power to Question: It gained the authority to challenge the government's underlying assumptions about departmental spending, preventing the use of unrealistic figures to make the numbers add up.
• Direct Data Access: The watchdog was granted direct and unfiltered access to Treasury data, enhancing its ability to conduct rigorous, real-time scrutiny.

This empowerment has led to palpable friction. By September, reports were circulating of the Treasury's own frustrations with the OBR's rigid assessments. The tension was highlighted when the OBR issued a statement in July noting that "promises made are constantly not kept" regarding public spending plans, a direct and public challenge to the government's fiscal narrative.

The Bottom Line

As Chancellor Reeves prepares to deliver her Budget, she is navigating a political and economic landscape shaped by an institution her own party strengthened. The debate over the OBR's power is not about a rogue agency; it is the intended consequence of a system redesigned to prioritise fiscal discipline and market stability above all else.

The upcoming Budget will be a critical test of this new reality. The Chancellor faces a choice: adhere to the tight constraints illuminated by the OBR's forecasts, thereby disappointing those calling for more ambitious spending, or seek to change the fiscal rules themselves, risking accusations of abandoning the very credibility she sought to build.

The difficult question is no longer whether the OBR is powerful—it clearly is. It is whether this power represents a vital safeguard for the UK economy or an unacceptable constraint on the democratic will of its government.