Reeves calling finances ‘very challenging’ before Budget was not misleading, OBR says
Rachel Reeves was not being misleading in warning of fiscal challenges ahead of the Budget, the UK’s economic watchdog has said, describing the margin against her fiscal rules as “wafer thin” before last week’s tax-raising Budget.
David Miles, a member of the OBR’s steering committee, said the watchdog’s forecasts last month implied there was a case for a “substantial tightening” in fiscal policy.
Miles’ words to the Treasury select committee come after the chancellor was accused of misleading the public earlier this month by exaggerating the fragile state of the public finances ahead of the Budget to justify tax rises for higher welfare spending.
“I don’t think it was misleading for the chancellor to say that the fiscal position was very challenging at the beginning of that week,” said Miles, referring to the week of November 10.
While the OBR’s pre-measures forecasts at the end of October pointed to a positive margin of £4bn against the chancellor’s key fiscal rule, this was very slender, Miles said, especially when there was a need to add the costs of earlier government U-turns on welfare savings plus the requirement to build up a bigger fiscal buffer.
However, Miles pushed back against the idea that there was a strong improvement in the OBR’s forecasts during successive rounds — as some government officials had suggested when explaining why Reeves had ditched the idea of an income tax rise during that week.
Miles said the OBR felt it was important to “set the record straight” after the Budget because of “misconceptions” that had been circulating in the media. There was also a suggestion “we had helpfully come up with some extra money” and that the forecasts had been “fluctuating wildly” in the lead-up to, and perhaps even after, the closure of the OBR’s “pre-measures” forecast. This, he said, was not the case.
The hearing of the Treasury select committee comes less than 24 hours after OBR chair Richard Hughes resigned following the watchdog’s accidental leak of its analysis of the Budget before the chancellor delivered it.
But MPs chose not to ask about the leak.
Meg Hillier, chair of the Treasury Committee, said that as the report only came out on Monday, “we recognise you won’t have any answers.”
Hearing ends, no questions about OBR leak
The hearing has ended after two hours.
A reminder that MPs chose not to ask about the unprecedented leak of the OBR’s Budget document, which led to the resignation of its chair on Monday.
The committee’s chair Meg Hillier said the witnesses could not be expected to comment on the report into the leak, which was released less than 24 hours ago.
Salary sacrifice changes likely to lead to lower pensions savings, OBR says
The witnesses from the OBR have given some further analysis on the UK’s public finances and Budget.
Asked about the government’s plan to cap the amount of money people can sacrifice from wages for their pensions without paying national insurance at £2,000 per year, Tom Josephs said:
Over the long term . . . you might expect lower pensions savings than you otherwise would have done.
However, he added that “there are other routes,” to savings.