Waiting on the OBR

The Office for Budget Responsibility is expected to downgrade the previous government’s growth forecasts. Alistair Darling’s rosy prediction that the economy would grow by 3-3.5 percent in 2011 will be replaced by a conservative estimate of 2-2.5 percent, in line with other independent forecasters. Also, according to the Guardian, the OBR will ‘trim’ the Treasury’s breezy estimates of growth until 2014-15.
 
There is no guarantee that the OBR’s forecast will be flawless – and the Treasury Select Committee’s scrutiny will have to be exhaustive. But George Osborne is bound to the OBR’s figures, rather than the Treasury being bound to a political agenda. Balance and responsibility will be restored to Budget decisions.

Political fractions over the economy will turn on the OBR’s figures. Alistair Darling has been making the case that the economy is not as addled as was thought – house prices have recovered, mortgage approvals have risen and borrowing is lower than expected. There is, however, an enormous caveat in the form of the enormous structural deficit.

The OBR is poised to confirm George Osborne’s and the IFS’ shared view that £70bn of the deficit is structural, not cyclical. Armed with that information, the coalition will make the long-term case for spending cuts. In a speech this morning, Nick Clegg will echo Lord Myners’ observation that there is “nothing progressive about a government that consistently spends more than it can raise in taxation and certainly nothing progressive that endows generations to come with the liabilities incurred with respect to the current generation.” That is unanswerable.