2025-04-18T08:00:05.000Z

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During its time in opposition, the Labour Party held the Office for Budget Responsibility (OBR) in high esteem, treating it almost as a sacred institution. The party's manifesto explicitly pledged that Labour would never sideline the OBR for political convenience. However, as the political landscape shifts, particularly following a challenging spring statement, this reverence appears to be fading among key Labour figures within No 10. Once staunch advocates of the OBR, they are now expressing significant skepticism.

The fiscal rules established by the OBR remain firmly in place despite discontent from Labour MPs; nevertheless, there is growing frustration regarding the institution's role in the government's fiscal assessments. This discontent is expected to intensify as Members of Parliament prepare to vote on a substantial 4.8 billion package of cuts to disability payments. These cuts are strategically designed to ensure that Chancellor Rachel Reeves does not fall short of the fiscal targets set by the OBR. Insiders within the government have voiced their irritation that the OBR's forecasts contradicted Reeves's initial estimates of savings from these cuts, which forced her to implement deeper reductions than she had originally planned.

One anonymous source revealed a troubling sentiment circulating within government circles, stating, The average opinion is now I wish we could scrap the OBR. And the average opinion in September was we should strengthen the OBR. This shift illustrates how dramatically perspectives have changed in such a short time. Notably, No 10 appears to be moving toward a more radical approach as it navigates complex fiscal challenges.

Reforming the OBR presents political challenges. Just last September, Reeves introduced the Budget Responsibility Act, which aimed to bolster the authority of the watchdog. However, the heart of the current frustration lies in the belief that the OBR is either overly cautious or incapable of properly capturing measures that No 10 believes would instill greater confidence in the marketsuch as reforms related to the state, changes in planning regulations, defense spending, or licensing laws.

Labour leader Keir Starmer has consistently communicated to his closest advisors his desire for more radical policy ideas. He has expressed dissatisfaction with the pace of progress, highlighting a sense of urgency for transformative changes.

Abolishing the OBR entirely is unlikely, as such an action would send shockwaves through the financial markets and could lead to a significant decline in market confidence reminiscent of the chaos unleashed by Liz Trusss disastrous mini-budget last fall. Nevertheless, senior government officials are tentatively exploring the possibility of reducing the number of forecasts the OBR produces after the fallout from its influence on the spring statement. For the first time, Starmer publicly criticized the OBRs forecasts during a recent appearance before Parliament.

The primary source of irritation stems from the OBR's twice-yearly forecasts, which complicate Chancellor Reevess intention to limit major fiscal events to just one budget per year. This perspective is shared by several cabinet ministers who are now advocating for a shift in this longstanding practice.

Altering the OBR's schedule to align with a single annual budgeting event would represent a significant departure from a requirement that has been in place since Harold Wilson's second term as Prime Minister. The 1975 Industry Act mandated that the government produce a minimum of two forecasts each year. While some economists have argued that having up to four forecasts per year would align better with the Bank of Englands timetable, the requirement was kept intact when George Osborne established the OBR in 2010.

Former OBR budget responsibility committee member Andy King commented, It is clearly a challenge to have two forecasts but an intention to only respond to one of them. Its always going to be difficult, especially in a volatile world, and especially if headroom is really, really small. He suggested that transitioning to a single annual forecast might not significantly impact financial markets, but could politically appear odd, particularly following Reeves's recent establishment of a more stringent mandate for the OBR.

Additionally, any attempts to modify the existing fiscal rules, which currently require a reduction of debt as a percentage of the economy within five years and mandate that day-to-day spending should align with revenues, are likely to be met with resistance. Such changes would likely be perceived negatively by market analysts.

The internal dynamics within Labour are becoming increasingly complex. Both party loyalists and more radical left-wing members are openly articulating their frustrations, sometimes not solely directed at the OBR as an institution but rather at the timing and presentation of its forecasts. This has been particularly evident during the recent spring statement, where the implications of a lower assessment of welfare changes necessitated last-minute cuts.

As Labour prepared to implement 5 billion in benefit cuts leading up to the spring statement, Treasury officials found themselves embroiled in a thorough and contentious back-and-forth dialogue with the OBR, sharing critical economic and fiscal data well in advance of the forecast report.

In a surprising turn of events, just the night before the final forecast was shared with the Exchequer, the OBR reportedly approached the Treasury to express disagreement with the costings of the benefits policy. The fallout from this revelation led to a chaotic weekend as ministers scrambled to address the shortfall, highlighting the unpredictability and tension in the current political climate.

One government source described the situation as unprecedented, stating, I cant recall a single instance where the government has approved a crucial figureone so central to the political narrativeonly for it to be privately challenged just two days later. This turmoil culminated in a public disagreement days after the dispute emerged.

During a recent session with the liaison committee, Prime Minister Starmer hinted at his own frustrations, stating, It is significant to my mind that the ability of any policy or legislation to change any behaviour at all is not priced in. In other words, the OBR has scored nothing against any change here.

A dedicated Labour MP expressed an urgent need for reform, asserting, Theres got to be something done about this. We cant have a situation where the government is entirely beholden to these forecasts. A veteran member of the party added, What no one is willing to say publicly yet is that we are at the whim of an institution that frankly gets things wrong often. The impact of welfare cuts is devastating, and it feels like they are merely an exercise in accounting.

Calls for action regarding the OBR and fiscal rules are growing within the parliamentary Labour Party. One member newly elected in 2024 remarked, This is eroding trust in a Labour government, all to make insignificant numbers on a balance sheet add up. Meanwhile, public perception surrounding these cuts is alarming; a recent YouGov poll indicated that 30% of voters believe the current government is implementing more substantial spending cuts than the previous coalition governmenta stark contrast, as only half that number believes the coalition made deeper cuts.