The resignation of Richard Hughes, head of the Office for Budget Responsibility (OBR), has raised significant concerns regarding the future direction of the UK’s economic oversight. His departure, resulting from a mix of internal pressures and political tensions, leaves Chancellor Jeremy Reeves with the daunting task of selecting a successor who can maintain the OBR’s independence while navigating the complexities of government relations.
Hughes’ resignation follows a controversy over his refusal to attribute credit to the government for its economic policies, which he deemed insubstantial. He stated that a policy only merits scoring if it materially impacts the economy, a threshold none of the recent government measures achieved, falling short of the 0.1% of national income limit. This stance has been met with criticism from various political factions, reflecting ongoing debates about the OBR’s role and influence.
March 2024 marks a pivotal moment for the Chancellor as he embarks on the search for a “respected and credible economist” to lead the OBR. Candidates will be scrutinized not only for their qualifications but also for their ability to uphold the independence that has become a cornerstone of the OBR’s operations. Market observers will closely monitor this selection process, aware that any deviation from established norms could have significant implications for economic stability and government borrowing costs.
The context of Hughes’ resignation is further complicated by the recent Budget’s management and the early release of sensitive information, an event that reportedly distressed him. The OBR’s independence has been a point of contention, particularly during the controversial mini-budget introduced by former Prime Minister Liz Truss. Hughes had been a staunch advocate for the OBR’s autonomy, enduring increasing pressure from both government and opposition figures who have questioned its constraints on elected officials.
Chancellor Reeves faces a delicate balancing act. While the OBR is expected to produce two full economic and fiscal forecasts annually, the government has indicated a shift in how it will respond to these forecasts. Hughes noted, “The government doesn’t feel obliged to respond to those forecasts with policy in the spring,” suggesting a move towards a more hands-off approach during crucial local elections.
The implications of the OBR’s future direction could be profound. If public finances show improvement in the upcoming forecasts, it remains uncertain whether the Chancellor will utilize any resulting surplus or remain conservative ahead of the elections. The OBR has also introduced new powers to assess the growing costs associated with special educational needs in England, a move that has sparked backlash from cabinet members and highlighted the organization’s influence on government priorities.
Hughes defended the OBR’s forecasting group, composed of 35 members, asserting that their authority derives from parliamentary mandates. “Chancellors set their own targets… All we do is produce a baseline forecast and assess whether we are on track to meet those targets,” he explained. This clarity underscores the OBR’s role not as a governing body but as an independent entity providing essential economic assessments.
As Hughes embarks on a gardening leave following his resignation, he leaves behind not only a complex political landscape but also a series of unanswered questions regarding the timing and nature of economic policy decisions. His testimony before the Treasury Select Committee, initially scheduled for March 2024, has also been cancelled, further intensifying speculation about the future of the OBR.
In his five years at the helm, Hughes navigated relationships with five different Chancellors, always with an eye towards promoting economic stability. The appointment of a new leader at the OBR presents both an opportunity and a risk for the government. The coming weeks will reveal how Chancellor Reeves manages this transition and the critical decisions that lie ahead for the UK’s fiscal future.
