LIVE: OBR members questioned by UK lawmakers after budget announcement

Key Concepts

• Office for Budget Responsibility (OBR): An independent public body of the UK government that provides independent economic forecasts and analysis of the public finances.
• Budget Responsibility Committee (BRC): The three-member committee responsible for the OBR's forecasts and analysis.
• Economic and Fiscal Outlook (EFO): The OBR's main publication, released twice a year, providing detailed economic and fiscal forecasts.
• Hog Review: An independent investigation into the inadvertent release of budget information.
• Pre-measures Forecast: The OBR's assessment of the fiscal outlook before the Chancellor announces new policy measures.
• Headroom: The margin by which the government is forecast to meet its fiscal rules.
• Fiscal Tightening: Measures taken by the government to reduce the budget deficit, typically through tax increases or spending cuts.
• Imputed Rents: The estimated value of the housing services consumed by homeowners, treated as income in national accounts.
• Fiscal Multipliers: The ratio of a change in national income to the change in government spending or taxation that causes it.
• Productivity Porcupine: A journalistic term describing the OBR's tendency to only revise productivity forecasts downwards over time.
• Dynamic Policy Scoring: The OBR's methodology for assessing the long-term economic impacts of government policies.
• Significance Threshold: A minimum impact (0.1% of GDP, or approx. £3.5 billion over five years) a policy must have to be formally scored for its growth effects by the OBR.
• Additionality Threshold: A criterion used by the OBR to ensure a new policy's growth impact is genuinely new and not offset by other changes.
• Fiscal Drag: The process by which inflation and wage growth push more people into higher tax brackets or reduce the real value of tax allowances, increasing tax revenue.
• Guilt Market: The market for UK government bonds (gilts).
• Current Balance: The difference between government revenue and current expenditure.
• Public Sector Net Financial Liabilities (PSNFL): A measure of the public sector's net financial obligations.
• Salary Sacrifice: An arrangement where an employee gives up part of their salary in exchange for a non-cash benefit, often used for pension contributions to gain tax efficiencies.
• Non-domicile Regime: A tax status in the UK that allows individuals whose permanent home (domicile) is outside the UK to avoid paying UK tax on their foreign income and gains, unless they bring them into the UK.

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Treasury Select Committee Session: Budget Review and OBR Scrutiny

The Treasury Select Committee convened on Tuesday, December 2nd, 2025, to discuss the previous week's budget. The session focused on the Office for Budget Responsibility (OBR), with key witnesses being Tom Joseph and Professor David Miles, both members of the Budget Responsibility Committee (BRC).

1. Resignation of Richard Hughes and OBR's Apology for Budget Leak

The session began with an acknowledgment of the resignation of Richard Hughes, the then-chair of the OBR, following the publication of the Hog Review. Hughes resigned after the inadvertent early release of budget information on November 26th, before the Chancellor's statement. The committee placed on record its thanks for Hughes's five years of stewardship, noting his appointment during COVID and handling of the mini-budget challenges. The committee also reaffirmed the OBR's vital importance and independence, stating its role in appointing Hughes's successor.

Tom Joseph, on behalf of the OBR leadership and Richard Hughes, apologized to the committee, Parliament, the Chancellor, and the Prime Minister for the early release. He acknowledged it was "hugely disruptive" to two important parliamentary events: Prime Minister's Questions and the Chancellor's budget statement. Joseph confirmed the OBR's deep regret and full commitment to implementing all recommendations of the Hog Review (produced by Baroness Hog, Same Susan Rice, and Professor Kieran Marson) to prevent future incidents. The committee decided not to discuss the Hog Review in detail during this session, recognizing it was newly released and required further work.

2. OBR's Letter to the Committee and Addressing Misconceptions

Professor David Miles discussed a letter the OBR sent to the committee, which was mentioned in the forecast documents and received on Friday. The letter aimed to "set the record straight" on the process of creating OBR forecasts and to "remove some misconceptions" circulating in the media. The letter's delayed release was due to the OBR dealing with the aftermath of the early information release.

Key Misconceptions Addressed:

• Pressure on Interest Rate Window: Speculation suggested the OBR moved the window for assessing market expectations of interest rates to benefit the government. Miles clarified that this window (10 days up to October 10th for economy assumptions, October 21st for fiscal forecasts) was decided in July and not shifted at the last minute. The later window for fiscal forecasts was chosen to allow the Treasury more time to finalize policy, a decision communicated in September.
• "Extra Money" Found: The idea that the OBR "helpfully came up with some extra money" at the last minute was refuted.
• Wildly Fluctuating Forecasts: The perception that OBR forecasts were "wildly fluctuating" leading up to the pre-measures forecast was incorrect. Miles stated that the outlook "gradually got a little bit more favorable," with headroom moving from slightly negative to slightly positive, but without "wild fluctuations."

New Information in the Letter: The letter specifically showed the preliminary forecasts (rounds one and two) that led up to the final pre-measures headroom number, demonstrating the gradual, rather than wild, improvements. This was an unusual step, taken to counter the misconceptions, and the OBR does not intend to set a precedent for routinely publishing all iterative forecast rounds.

OBR's Concerns about Leaks and Public Debate:

• The OBR was aware of information appearing in the press that was "not particularly helpful" and made this clear to Treasury officials during regular meetings, particularly in the lead-up to the pre-measures forecast.
• Concerns included the OBR being portrayed as a "source of difficulty" due to fluctuating forecasts or as a "Patsy" yielding to government pressure.
• The OBR confirmed it undertook no internal leak inquiry, being confident no leaks originated from within its organization.
• Professor Miles expressed concern about the "false market" in gilt prices that might have been created between the Chancellor's initial "bad news" statements on November 4th and the Treasury's clarification on November 14th, which moved the gilt market. He maintained that the OBR's final pre-measures assessment of +£4 billion headroom was "wafer thin" and "not inconsistent" with a "very challenging fiscal position," especially considering known post-measures reversals (e.g., welfare decisions) that would turn it negative.

Relationship with the Treasury: Tom Joseph described the OBR's relationship with the Treasury as having "creative tension," inherent to its role as a watchdog. He emphasized the need for disagreements on analysis while maintaining a constructive working relationship. The Treasury agreed to the publication of the OBR's letter.

Impact of Speculation on the Economy: Professor Miles stated that "uncertainty generally is not helpful for most economic decisions," potentially leading to postponed investments and damaging growth, even if in a small sense.

3. Changes to Fiscal Rules and Transparency

The Chancellor announced that the spring forecast would not include a formal assessment against fiscal rules, aiming for a single main fiscal event in the autumn.

• Impact: The OBR will still produce a full economic and fiscal forecast, including numbers for all fiscal aggregates (e.g., current balance, public sector net financial liabilities), but will not provide a "yes or no" formal assessment of whether targets are met.
• Transparency Concerns: Committee members questioned if this reduced transparency, citing former OBR chair Richard Hughes's statement that a single annual forecast would make the UK "one of the least fiscally transparent countries in Europe." The OBR clarified that the Chancellor's proposal is not for a single forecast, but for a preliminary spring forecast followed by a formal autumn budget, a model common in many countries.
• Market Reaction: Concerns were raised that if the government appears off-track in spring without a formal repair, markets would react, and the lack of formal assessment could make markets more vulnerable to "spin" from the Treasury. The OBR reiterated its focus on producing reports as required by legislation and abiding by government changes.

4. Productivity Downgrade and Methodology

The OBR downgraded its productivity forecast, a decision Professor Miles defended as timely.

• Timing Justification: Miles argued that earlier downgrades would have been "jumping the gun" due to the "fog of noise" from major shocks like COVID and energy price increases. He believed it was necessary to wait until the "dust had settled" (mid-2025) to assess underlying trends, as measured productivity fluctuations during and immediately after shocks do not reflect long-term trends.
• Institutional Decision-Making: The decision involved extensive work by 3-4 OBR economists, drawing on evidence from historical periods, recent data, and considering future impacts like AI and deglobalization. Discussions were held with an advisory panel of academic and city economists, leading think tanks (IFS, National Institute, Resolution Foundation), and Treasury economists (including John Ranan and Jonathan Haskell). The final decision was a "collective decision" by the BRC, reached by consensus, with Professor Miles leading on economic analysis.
• "Productivity Porcupine": Miles addressed the criticism that OBR forecasts have consistently been too optimistic, leading to only downward revisions. He attributed this to a "collection of very big shocks" (financial crisis, COVID, energy price shocks) that have all turned out to be negative, making previous forecasts appear "ludicrously optimistic."

5. Dynamic Policy Scoring and Fiscal Multipliers

The OBR's dynamic policy scoring methodology was discussed, particularly regarding its assumption of zero fiscal multipliers for public investment beyond five years.

• Pro-Growth Measures: Miles clarified that the OBR does factor in pro-growth measures if they are confidently expected to have a "significant" effect (0.1% of GDP, or approx. £3.5 billion, over five years). Examples included planning and housebuilding policies from the March fiscal event and the India trade deal, which, while not always meeting the 5-year threshold, are acknowledged for their meaningful long-term effects.
• Fiscal Multipliers: The assumption of zero fiscal multipliers beyond 2-3 years for demand-side policies (e.g., government spending, tax cuts) is based on the view that the Bank of England will adjust monetary policy to bring demand back in line with productive potential, causing short-term Keynesian demand effects to fade.
• Forward-Looking Forecasts: The OBR's productivity forecasts consider both past trends and forward-looking factors like AI and the trade environment. They also produce scenarios to illustrate risks if productivity deviates from their central forecast.
• New Approach to Supply-Side Scoring: The OBR introduced a "significance threshold" (0.1% of GDP) for scoring supply-side policies to focus on genuinely impactful measures and improve transparency, applying symmetrically to both positive and negative growth policies.

6. Specific Policy Impacts and Fiscal Outlook

• Growth in Labor Income (Fiscal Drag): Higher-than-expected wage settlements (around 5%) and inflation (up by 0.5% for next year) boosted receipts forecasts. This was particularly impactful due to personal tax threshold freezes, leading to "fiscal drag" and effectively increasing the tax rate on incomes. While positive for receipts, it's not necessarily "good news" for the economy overall, as it reduces real disposable income and contributes to inflation.
• Real Household Disposable Income (RHDI): The forecast for RHDI per person is "less optimistic" than in March, with lower growth (around 0.3-1%) beyond the current year, primarily due to the productivity downgrade and fiscal tightening.
• Migration Data: Recent net migration data is lower than forecast. The fiscal implications depend on the composition of migrants (workers vs. dependents) and their duration of stay. The OBR's forecasts had already anticipated a sharp drop in net migration, which has occurred faster than expected. Data on the tax take of people leaving the country is not yet available.
• Backloaded Fiscal Consolidation: The budget's increased headroom (now £22 billion, double previous levels) relies on "significant backloading," with £24 billion in savings in the final two years of the forecast period (2029-30). This raises concerns about political risk, as an election is expected around mid-2029.
  • SEND Funding: The government plans to transfer £6 billion of Special Educational Needs and Disabilities (SEND) provision from local to central government from 2028-29 but has not detailed how it will be funded within the existing envelope. The OBR flagged this as a significant risk, illustrating potential implications for mainstream school spending.
  • Defense Spending: The ambition to reach 3.5% of GDP for defense spending in the 2030s (estimated £35 billion in today's money) is a significant long-term pressure.
• Government Debt: The OBR noted that government debt relative to GDP has been rising for many years and is "unsustainable" in the long run without a "sustained effort" to reduce it. Borrowing has been stuck around 5% of GDP since the pandemic, despite plans for it to fall.
• Government Efficiencies: The budget highlighted an additional £4.9 billion in efficiencies, building on £14 billion from the spending review. The OBR does not build these directly into its spending projections but assesses the risk within departmental envelopes, reducing underspend assumptions. Achieving these targets, such as a 16% reduction in civil service back-office costs, is "ambitious" but has historical precedent.
• Global Stock Market Correction: The OBR highlighted the risk of a global stock market correction, with scenarios including a 35% fall in global equities (or 15% in the UK if the rest of the world takes a bigger hit). Such a fall could deteriorate the current balance by £16 billion (global) or £9 billion (rest of world), impacting public sector net financial liabilities through local authority pension schemes.
• Gambling Taxes: New gambling taxes involved complex costing due to behavioral assumptions. The OBR assumed operators would pass on costs, leading to reduced demand and some movement to the illicit market (though evidence suggests this is not huge). They also factored in substitution between different forms of gambling due to varying tax rates.
• Electric Vehicle (EV) Taxes: New EV taxes are projected to offset only about a quarter of the long-term loss of fuel duty revenue. This is because the EV charge is roughly half that of average fuel duty and currently applies only to cars, not vans and lorries (which account for nearly half of fuel duty receipts). The OBR predicts a net reduction of about 100,000 EV sales due to the charge, though this is uncertain due to offsetting government incentives and EV mandates.
• Fuel Duty Uprating: The budget states fuel duty will be uprated by RPI from April 2027. If this does not happen (as rates have been frozen for 16 consecutive times), it would cost about £3.5 billion annually, with a cumulative cost of £120 billion since 2010.
• Dividend Tax Increase: A relatively small 2 percentage point increase in dividend tax for basic and higher rate taxpayers was forecast to have a zero long-term behavioral impact, partly because additional rate taxpayers (who pay a lot of dividend tax) were not affected.
• Overall Growth and Productivity Impact of Budget Measures: The OBR judged that the budget measures did not improve aggregate growth or productivity in the UK. Higher taxes, reaching the highest level since WWII, make it "very difficult to raise taxes without affecting incentives to save, to work, to invest, to become an entrepreneur, to stay in the UK."
• NHS Productivity: The OBR did not include an updated assessment of NHS productivity in this report.
• Employment Rights Bill: The OBR has not incorporated any impact of the Employment Rights Bill due to ongoing legislative uncertainty and significant subsequent changes.
• Non-Domicile Regime: The OBR has not changed its assumption of "pretty significant outward migration" due to the non-domicile regime changes, as there is no "hard evidence" to alter this, with data not expected until early 2027.
• Salary Sacrifice for Pensions: New measures reducing tax benefits for salary sacrifice pension contributions are expected to have a long-term impact on pension savings, though the costing assumes people will move to other tax-efficient routes.

7. UK Gilt Rates and Future OBR Engagement

• Higher UK Gilt Rates: UK gilt rates are consistently higher than in France, despite France having more debt. This is attributed to the Euro being a more widely held global currency than Sterling, and the potential for EU/ECB support for France in a fiscal crisis, which the UK would not receive.
• Reporting Unhelpful Briefings: The OBR confirmed its willingness to inform the committee if it felt "buffeted by briefings" or "unhelpful information" at future fiscal events, recognizing its role in serving the committee.

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Conclusion

The session highlighted the OBR's critical role in providing independent fiscal analysis amidst significant political and economic challenges. The OBR defended its processes, particularly regarding the budget leak and the letter clarifying misconceptions about its forecasts and independence. Key takeaways include the OBR's commitment to implementing the Hog Review recommendations, its justification for the timing of the productivity downgrade, and its nuanced approach to dynamic policy scoring. The discussion also underscored the "wafer-thin" nature of the current fiscal headroom, the risks associated with backloaded consolidation, and the long-term challenges of rising government debt and the impact of fiscal drag on household incomes. The OBR's willingness to maintain "creative tension" with the Treasury while upholding its independence and transparency remains central to its function.