Two years ago, the UK’s top economic institutions were about to face intense scrutiny. Liz Truss’s Conservatives were planning a major overhaul, aiming to replace Treasury leaders and abolish the Office for Budget Responsibility (OBR).
Now, the situation has reversed. Treasury officials created a detailed report highlighting spending discrepancies, providing new Chancellor Rachel Reeves with ammunition for her parliamentary address on Monday. Following Reeves’ audit, the OBR released a letter supporting her claim of inheriting a dire fiscal situation. The OBR indicated there was a significant fiscal gap before the election, partly due to unexpected public sector pay settlements of 5-6%.
The OBR also identified billions in undisclosed spending pressures, revealed only last week. This prompted the OBR to review its March forecast for accuracy, challenging the former government’s claim of transparency. The OBR had previously warned about spending underestimates affecting borrowing forecasts, constrained by legally provided figures.
Rachel Reeves plans to change this, granting the OBR new powers to initiate independent forecasts and question government spending assumptions. This aligns with her strategy to embrace expert advice and strengthen institutions. The OBR gains new authority, expert pay reviews are fully accepted, potentially leading to significant pay rises for 2.5 million workers, and a new Office for Value for Money will seek savings, alongside new bodies to oversee and prioritize public investment.