Union calls for robust review of OBR over fears it holds back economic growth
TUC will urge John Healey to order ‘root and branch’ assessment of watchdog amid claims its forecasts downplay investment benefits
The TUC is urging the new chancellor, John Healey, to order a “root and branch” review of the Office for Budget Responsibility, claiming the forecaster’s approach holds back investment.
With Andy Burnham promising “good growth in every postcode”, the union umbrella body is calling on Healey to use his first budget on 28 October to re-examine the assessments of the watchdog.
In particular, it accuses the OBR of downplaying the benefits of public investment, by assuming it “crowds out” private capital – an approach disputed by some economists.
Paul Nowak, the TUC’s general secretary, said: “For too long, the OBR has been a millstone preventing good growth across the country.
“The world has moved on from the self-defeating logic of austerity, but the OBR models still bake in its false assumptions. Only a root and branch review can bring the OBR into the modern economic mainstream.”
The TUC’s critique echoes calls for a restructuring of the independent forecaster from a range of thinktanks and campaign groups, including Progress, from the right of the Labour party, and the leftwing New Economics Foundation.
Louisa Dollimore, of the Good Growth Foundation thinktank, previously called the body “a backseat driver with out-of-date maps” that “obstructs long-term planning and investment at a moment when Britain needs both”.
Healey’s predecessor, Rachel Reeves, recently picked economics professor Jonathan Haskel as the next chair of the OBR, after the resignation of Richard Hughes last December, after the OBR inadvertently published details of the budget in advance.
Haskel, a former member of the Bank of England’s monetary policy committee, will have to oversee a new economic forecast to inform this year’s budget.
He told MPs on the Treasury select committee last month that he was more pessimistic about the outlook than some other experts. “My forecast would be in the medium term of somewhat higher interest rates and weaker GDP growth than most are expecting,” he said.
Haskel also told the committee in a public hearing that Britain was “not in a very good fiscal position”.
The TUC is also calling on the chancellor to beef up investment bodies such as the National Wealth Fund (NWF), to take advantage of flexibility built into the fiscal rules.
Reeves revised the rules so that government borrowing does not count against Treasury targets if it is matched by a financial asset – such as a share in a company or a loan.
The TUC says this should allow for significant additional investment by government-backed institutions including the NWF and the National Housing Bank.
The NWF invests in infrastructure projects and backs British businesses, in an effort to boost growth and “crowd in” private investors.
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The TUC is calling on the government to change the NWF’s mandate to allow it to pick investments that could take as long as 15 years to generate a return in order to widen the pool of suitable projects.
Nowak said: “Amid global economic turmoil, Labour has delivered the second fastest growth in the G7. That’s partly down to the government’s fiscal rules that rightly allow more borrowing for investment.
“But the government needs to do more to release the handbrake. An ambitious application of the existing fiscal rules and a wider mandate for the National Wealth Fund can reindustrialise Britain.”
Some economists have raised concerns about the potential impact on the bond market of increased borrowing. On Friday, the consultancy firm Oxford Economics said: “The UK’s fiscal position is poor, while there’s an underlying wariness about the new PM’s commitment to fiscal sustainability.
“While Healey has been saying all the right things, it’s what the new administration does that will be key. If the first move is to loosen policy, despite no underlying improvement in the public finances, that risks sending a signal that markets won’t like.”
A Treasury spokesperson said: “Fiscal discipline is the bedrock of economic stability and national security.
“The chancellor and prime minister are in lockstep that the government will meet the fiscal rules, with a buffer against uncertainty – and that includes getting debt down.
“As has always been the case, the chancellor will set out decisions at fiscal events, rather than routinely commenting on proposals.”
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