There is perhaps no document more useful for understanding the state of the nation than the Office for Budget Responsibility’s ‘Economic and Fiscal Outlook’. The 180-page document, released as soon as the Chancellor sits down after a Budget or financial statement, can not only seal the fate of a government but also tell us where the country is heading.
Today was no exception. The OBR’s outlook was filled with bombshell after bombshell. Here are five of the most shocking findings in the report:
1. The OBR’s housing forecasts suggest Labour is nowhere near to achieving its target of building 1.5 million new homes in this parliament – which Rachel Reeves already downgraded to 1.3 million today. Even in the OBR’s most optimistic scenario for house building, it says only 1.2 million homes will be built from 2024 to 2029.
2. Labour’s workers’ rights programme hasn’t been factored in yet by the OBR but it will likely have a ‘net negative’ effect on its outlook for the economy.The OBR said:
‘We are yet to reflect the impact of the Government’s Employment Rights Bill in the forecast [because …] there is not yet sufficient detail or clarity about final policy parameters to allow us to robustly assess the economic and fiscal impacts.’
Though the forecasters gave a general warning that: ‘Employment regulation policies that affect the flexibility of businesses and labour markets or the quantity and quality of work will likely have material, and probably net negative [emphasis added], economic impacts on employment, prices, and productivity.’
3. Productivity – the cornerstone of economic growth – has been revised down by 1.3 per cent since the last OBR forecast in October. Moreover, the forecasters warned: ‘If the projected recovery in UK productivity growth fails to materialise, and it continues to track its recent trend, then output would be 3.2 per cent lower and the current budget would be 1.4 per cent of GDP in deficit by the end of the decade.’
That should ring serious alarm bells for the Chancellor as the OBR historically has overestimated productivity growth. The chance that ‘productivity growth fails to materialise’ seems fairly high. The OBR has confirmed here that without fixing Britain’s productivity problem, growth is going absolutely nowhere.
4. The OBR says that some £8 billion of government savings and raised revenue – from benefit cuts and increasing tax compliance and collection – has been given a ‘high’ or ‘very high’ uncertainty rating by the OBR. In other words: this money may not actually exist.
5. And as John O’Neill pointed out on our live blog, the OBR uses what it calls a ‘conditioning window’ – a specific time period when it looks at market expectations to work out government borrowing costs. For this latest report, the OBR looked at the ten working days ahead of 12 February. At that point, the Bank of England had cut interest rates and so borrowing costs were expected to fall as well. Since then, markets have expected rates to stay higher for longer. That means if borrowing costs do stay high, Reeves may have less money to play with than she thought. Her financial headroom for autumn could already be disappearing.
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