In a bold move signalling a shift in economic policy, the Trade Union Congress (TUC) has called on newly appointed Chancellor John Healey to initiate a sweeping review of the Office for Budget Responsibility (OBR). The union argues that the OBR’s current forecasting methods are hindering vital public investment, stifling economic growth at a time when the UK can least afford it.
TUC’s Critique of OBR Forecasts
The TUC is particularly critical of the OBR’s prevailing assumption that public investment “crowds out” private capital, a notion that has drawn scepticism from various economists. TUC General Secretary Paul Nowak expressed frustration, stating, “For too long, the OBR has been a millstone preventing good growth across the country.” He emphasised the need for a thorough reassessment of the OBR, arguing that its models remain trapped in outdated austerity thinking.
The TUC’s appeal for a “root and branch” review aligns with calls from a spectrum of think tanks and advocacy groups, including the left-leaning New Economics Foundation and the centrist Progress. Louisa Dollimore from the Good Growth Foundation has branded the OBR as “a backseat driver with out-of-date maps,” asserting that it obstructs the long-term planning necessary for the UK’s economic recovery.
New Leadership at OBR
The OBR has recently experienced a leadership shake-up, with economics professor Jonathan Haskel stepping in as chair following Richard Hughes’ resignation last December—a departure prompted by an inadvertent early budget leak. Haskel, who previously served on the Bank of England’s monetary policy committee, has already indicated a more cautious economic outlook than some of his contemporaries. In a recent Treasury select committee hearing, he warned of “somewhat higher interest rates and weaker GDP growth” than many were anticipating, further complicating the economic landscape.
Investment and Fiscal Policy Changes
In addition to its critique of the OBR, the TUC is advocating for enhanced investment initiatives such as the National Wealth Fund (NWF). This fund is designed to support infrastructure projects and bolster British businesses, aiming to “crowd in” private investors rather than displace them. The TUC is urging the government to modify the NWF’s mandate to allow for longer-term investments, potentially up to 15 years, which would widen the scope of viable projects.
Nowak stated, “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.” He believes that an ambitious application of these rules, along with a broader mandate for the NWF, could play a crucial role in reindustrialising Britain.
Potential Risks and Economic Stability
Despite the TUC’s optimistic outlook, some economists have voiced concerns about the implications of increased government borrowing on the bond market. Oxford Economics recently highlighted fears regarding the UK’s fiscal position, cautioning that any relaxation of fiscal policy without concrete improvements in public finances could unsettle financial markets. The consultancy noted the importance of maintaining fiscal discipline, with a Treasury spokesperson reinforcing that “fiscal discipline is the bedrock of economic stability and national security.”
Why it Matters
The TUC’s demand for a comprehensive review of the OBR comes at a critical juncture for the UK economy. As the government grapples with the dual challenges of stimulating growth and maintaining fiscal responsibility, the outcome of this review could reshape the landscape for public investment, potentially unlocking resources for infrastructure and development that could propel the UK towards a more sustainable economic future. In a time when economic resilience is paramount, the TUC’s push for reform could either pave the way for revitalised growth or expose deeper fissures in the nation’s fiscal strategy.
