Office for Budget Responsibility

You may have heard of the Office for Budget Responsibility (OBR) and their bi-annual forecast, but do you know who they are, what they do, why they were set up, and how their predictions influence the economy - and your personal finances?

Founded in 2010 under the Conservative-Liberal Democrat coalition government, the OBR was created to provide an independent, non-partisan analysis of the UK economy. Prior to 2010, the government would create its own financial forecasts.

Before the government makes a big financial announcement, they share their plans with the OBR, such as whether they intend to raise or lower taxes and how they are planning to use government money.

Based on this, the OBR checks the information and releases economic forecasts covering the next five years. The forecast predicts whether the UK economy will grow or shrink, and if the government will spend more than they make in taxes and cuts. The OBR’s next forecast will be released alongside the chancellors next forecast on 26th March 2025.

Why is the OBR important?

In short, the Office for Budget Responsibility predicts whether the government will be able to stick to their plans for managing the economy. The OBR’s judgment is important for financial investors, as it can help them determine the government's borrowing costs for bonds depending on how much of a risk the current governments financial situation is seen to be.

In autumn 2022, Liz Truss and then chancellor Kwasi Kwarteng rejected the OBR’s offer to draft an economic forecast and announced a set of tax cuts in their mini budget without consulting the OBR first.

The pound crashed immediately afterwards, indicating that investors did not have faith in the government’s idea, and the Bank of England had to step in and protect their pension funds.

Many believe that the OBR not being consulted was a major reason for the investors lack of faith. Jeremy Hunt, who replaced Kwarteng soon after, said the government had made a mistake by not taking the OBR’s input.

In July 2024, the new Labour government proposed a law which would prevent future leaders from not including the OBR in their financial decisions. This law, which was passed in September 2024, gave the OBR the authority to make judgements on any major spending announcements or changes in taxation, to provide stability moving forwards.

After current chancellor Rachel Reeves’ first big speech as chancellor, the OBR suggested that there were billions of pounds of spending pressure that they hadn’t known about when creating their March 2024 forecast. This prompted Reeves to push forwards with her Budget Responsibility Law to further strengthen the OBR, allowing them to question government assumptions about departmental spending and demand more specific details. Spending reviews will now also happen every two years, according to Reeves.

The OBR is run by the Budget Responsibility Committee, which has three members, including current chair Richard Hughes who has been in the position since 2020.

Sources

1.    https://www.bbc.com/news/explainers-63159607

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

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March 2025