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Hunt and Sunak are to blame for forecasting errors, says OBR chief

Hunt Sunak
Hunt Sunak

The head of the Office for Budget Responsibility (OBR) has blamed Rishi Sunak and Jeremy Hunt for the watchdog’s forecasts being wrong.

Richard Hughes said the OBR’s projections for the economy would inevitably contain errors because the body was forced to take the Government’s spending plans at face value.

Forecasts could be off by as much as £30bn because of ministers’ inability to stick to plans, Mr Hughes said.

The swipe at politicians comes after former Prime Minister Liz Truss accused the OBR of groupthink in September.

She warned that Labour’s plans to strengthen its powers were “depressing” and would only add to “a barrier to prosperity”.

Richard Hughes
Mr Hughes says errors are inevitable because the body was forced to take the Government’s spending plans at face value - Heathcliff O'Malley

This followed a pledge from Shadow Chancellor Rachel Reeves who has said the OBR would review every major decision on tax and spending if Labour triumphs at the next election.

However, Mr Hughes suggested that even after Ms Truss’s volatile stint as prime minister, during which she bypassed OBR scrutiny for her mini-Budget, the watchdog is still struggling to forecast the outlook for public finances.

Mr Hughes told MPs on the Public Accounts Committee: “We are forced to rely on state of Government policy when we put our forecast together.

“As we all know, there are patterns of behaviour in Government where they say they are going to do things and then everybody knows they are not going to do them. But we have to believe them when they say it.”

Mr Hughes’ remarks come after the Chancellor last month announced £20bn of tax cuts while pencilling in equally large spending reductions in the years after the election.

Some economists branded the plans “implausible” at the time, a view largely shared by Mr Hughes.

He said: “Before any spending happens the Government says we’re going to run the public finances really tight after 2025. Then when 2025 comes around suddenly it is more money on health, more money on education.”

The Government tends to set out a “rather tight path for the spending on public services” before it has to specify how much each department gets, the head of the watchdog said.

Mr Hughes said: “Then when spending reviews come around, at least recently, they have chucked loads of money into the pot when it becomes time to allocate it out to health, education, transport and other areas. That is to the tune of £20-£30bn. So that could drive up to £20-£30bn error in our medium-term forecasts of public spending.”

The OBR chief also pointed to fuel duty as “the classic example” of the Government changing tack, which has frequently thrown the forecaster’s projections into disarray.

Mr Hughes said: “The Government says every year it is going to index it [fuel duty] to RPI [the retail price index]. It [then] gets frozen every year. The Treasury Committee eventually got fed up with this and instructed us to do the forecast on two different bases – one is frozen, the other indexed.”

The OBR noted in its November analysis that 43pc of Mr Hunt’s fiscal buffer would be wiped out by 2028-2029 if he continues to keep fuel duty frozen.

Mr Hughes also warned that the growing cost of servicing the UK’s ballooning debt was increasingly harming Britain’s spending power.

The latest OBR forecasts show that debt interest will be £115bn costlier over the next five years than had previously been predicted. This jump has been driven by interest rates rising to a 15-year high and inflation proving more persistent than expected.

Mr Hughes said: “That constrains the choices that the Government has when it puts together budgets because the more of your fiscal space that is taken up by interest costs, the less you have to spend on health, education, other areas or the less you can you can give back in tax cuts if that’s what you want to do.”

His comments also contained criticism of “fickle and flighty” foreign buyers of government debt, who he said posed a risk to the gilt market’s stability because their actions are harder to predict.

A Treasury spokesman said: “We are focused on creating a more productive public sector, not a larger one, by reducing admin workloads, introducing early interventions and safely bringing in new tech like AI. This will stop the state growing ever larger and ensure taxpayers’ money is spent on the public’s priorities.”