by Martin Odoni

I have argued for something like five years now that the Office for Budget Responsibility is not fit for its (stated) purpose and should be abolished. Since it was established under George ‘Gidiot’ Osborne in 2010, it has failed to gets its projections anywhere near right pretty much every time, always over-estimating how well the British economy will do. This is partly because, in practice, it largely just echoes the Friedmanite assumptions of the International Monetary Fund.

Of course, we should not make the mistake of assuming that the OBR’s stated purpose of being is the real one. It is never like that in Westminster, especially not when the Conservatives are in power. At the start of the Tory coalition with the Liberal Democrats, Osborne’s purpose in founding the office was really just public relations. The Tories were desperate to give the profoundly dishonest impression that the ‘Credit Crunch’ financial crisis of 2007-9 was a result of ‘profligate public spending’, and not of the sort of reckless banking sector activities that successive neoliberal Governments across the western world had spent decades encouraging. This deceitful narrative gave the Tories an excuse to attack the public sector instead of the financial sector, all in the name of ‘responsible public spending’ (a concept that is short of real meaning when looked at closely). How better to give such an impression that than by establishing an entire new Government office named in tribute to ‘penny-wise thrift’?

But the OBR is no longer any good for that image-shaping approach either, because after seven years of getting pretty much every major projection for the public finances wildly wrong, always erring on the side of mindless optimism, its every announcement now serves only to make the Treasury look increasingly incompetent.

Today’s Winter Budget statement delivered by Phillip ‘Spreadsheet-Phil’ Hammond – the Chancellor who is to charisma what Osborne was to intellectual decency – included yet more dismal forecasts from the OBR, as it once again revised its previous projections downwards. Growth is expected to be lower over the next few years than had previously been predicted, the National Debt is going to climb for longer than predicted, productivity is going to remain low for longer than previously predicted… oh, please stop me if you have heard these lyrics many-a-time before.

So the books are not becoming noticeably balanced, nor is the Government looking noticeably competent. The OBR is clearly not achieving its stated aim, or its real aim.

But then. neither aim would be justified; the job of the Chancellor of the Exchequer is not, never has been, and never will be, to balance the budget. In most respects, it just cannot be done, not for more than a very brief while anyway. As I have stated many times before, should the Government get the public finances into surplus, it will probably lead to a national economic crash, or at least a serious slowdown.

No, the Chancellor’s job is not to balance the budget, it is to balance the economy as a whole – to find sustainable ways to keep industry and cash-circulation going, and to make sure that all industrial sectors are operating healthily and not just the service sector.

With the OBR making the supposed assumption that ‘balancing the budget’ should be the aim instead of balancing the economy, its officials make projections based on the twin notions that a public sector surplus will be good for the economy, and that the best way of achieving a surplus is to cut public budgets ruthlessly. Neither is true. A public sector surplus will simply mean a private sector deficit, one whose effects are far harder to control, and will most likely include a very painful recession. And as cutting budgets indiscriminately reduces industry and increases unemployment, lowering activity in the economy, tax yields will inevitably decline soon afterwards, meaning the public deficit does not reduce nearly as far as the OBR projects. (When a budget is cut, the people carrying out the work that budget was paying for have less work to do, and some or all of them will inevitably be laid off, and so stop receiving a wage. When they are not receiving a wage, they pay no income tax, they buy less and so pay less Value Added Tax as well,; in short, tax receipts go down.)

This is why the 2010 aim of wiping out the deficit by the spring of 2015 never came to pass, and the target has been repeatedly pushed back; the endless rounds of austerity measures and spending cuts have reduced outlays, but then have soon led to tax receipts becoming smaller and smaller as well. This has meant the net gap between receipts and outlays stubbornly refuses to close up completely, irrespective of whether it would be good news if it did. The projected deadline for the public sector being in surplus has now been pushed back to 2025 – that is fully ten years after the original target set by Osborne in 2010 – and I have no doubt it will be pushed back still further within another eighteen months, especially with the damage of a completely-unplanned Brexit getting uncomfortably close to the horizon.

Austerity carrot on a stick

Like the donkey chasing a carrot dangling from a stick tied to its back, the more a Government cuts spending to reduce the deficit, the further the point of equilibrium moves away from its reach. Whether fiscal conservatives like it or not, they simply have to face facts; austerity is based on a deluded aim, it is not working, it is unable to work, and it is certainly not going to work after Brexit.

No one at the OBR ever seems to grasp this, and for that reason, more than ever, it is not fit-for-purpose, either economically or politically, and should be disbanded.