Office for Budget Responsibility: What is the OBR and what does it do?

The UK's Office for Budget Responsibility (OBR) is responsible for overseeing the UK government's spending plans and their implementation. The agency operates independently of the government but works closely with the Treasury, aiming to provide an objective assessment of the UK's economic situation.

The OBR publishes economic and public finance forecasts twice a year. These reports are typically released in conjunction with significant government events such as the budget and autumn statement. Prior to these announcements, the government provides the OBR with detailed information on its plans to raise or lower taxes and how it intends to use public funds.

The OBR reviews this information and makes forecasts about the state of the economy for the next five years. These forecasts cover key issues such as whether government spending exceeds income and whether the UK economy is growing or shrinking. The OBR's next forecast report is due to be published on March 26, alongside Chancellor Rachel Reeves' spring forecast.

The OBR's forecasts are crucial for assessing whether the government is able to adhere to its stated rules for economic management. Financial investors fund government spending by buying government bonds, a form of IOU. Therefore, the government's borrowing costs are partly dependent on how financial markets react to the OBR's assessments and forecasts.

In July 2024, the incoming Labour government stated it would pass a new law aimed at preventing any future government from ignoring the OBR. The law, passed in September 2024, gives the OBR the power to assess any significant tax or spending announcements to provide "stability," according to the Treasury. This follows the Truss government's mini-budget in September 2022, which proposed a series of unfunded tax cuts without prior consultation with the OBR. This move caused the pound's value to plummet, indicating a lack of confidence in the government's measures from international investors, and the Bank of England was forced to intervene to protect pension funds.

Labour Chancellor Reeves stated that the OBR will be able to challenge government assumptions about departmental spending and demand more detail on whether departments are likely to overspend or underspend. She also said that spending reviews will now take place every two years with detailed plans drawn up in advance. The OBR was established in 2010 to provide independent analysis of the UK economy, free from partisan politics. It also assesses some of the financial policies of the Scottish and Welsh governments.

The OBR is led by the Budget Responsibility Committee. This committee consists of three members, including the current chairman, Richard Hughes, whose five-year term began in October 2020.