Angry bosses turn to the OBR to protest against Labour

With weeks to go before the Budget, Rachel Reeves is short of cash and looking for someone to shake down – even her own guests.

At a recent event hosted in Downing Street, officials told economists at one prominent think tank that they could only attend the evening reception if they agreed to hand out canapés and clear up.

What’s more, the Chancellor proceeded to publicly lambast those same economists for a report they wrote that rocked the stock market.

With friends like these in government, it’s little wonder that some businesses are taking their lobbying elsewhere.

Some are even turning to Reeves’s own fiscal arbiter instead in the hope of sparking action ahead of her big tax and spending review on Nov 26.

Last week, the Home Builders Federation (HBF) wrote to the Office for Budget Responsibility (OBR) to warn that ministers’ target of building 1.5 million homes in England by the end of the decade will not be achieved.

It is calling on Labour to take steps to boost affordability in the Budget.

The unusual intervention is a sign of growing frustration with the Government that some in the private sector have decided to reject the traditional process of Budget submissions in favour of lobbying Reeves’s watchdog directly.

Whereas once business groups may have discreetly met with Treasury officials to try to bend their ear, some are now going over the heads of No10 and No11 completely to make their case to the spending watchdog.

Some say part of the problem is that the decision-makers behind the Budget do not instil much confidence.

Those who have met Minouche Shafik, Sir Keir Starmer’s chief economic adviser, for example, have been unimpressed by her political instincts.

Described as “overly academic” by some and “out of touch” by others, even those sympathetic to Labour’s tax and spend strategy have been left nonplussed by her aloof approach.

Yet the direct pleas to the OBR also speak to the enormous power it wields. Given its judgment on Reeves’s tax and spending plans can make or break her Budget, the watchdog is now one of the most influential forces in British politics.

It is rare for businesses to directly approach the spending watchdog. While the OBR regularly speaks to different parts of the business world, it reserves most of its correspondence to discussions with MPs.

Under the last Tory government, Richard Hughes, the chairman of the OBR, had exchanged letters with Sir Geoffrey Clifton-Brown, a Tory MP, on plans to reverse the end of VAT-free shopping for tourists in one of the clearest signs that the Treasury wanted to change tack.

Jeremy Hunt, then chancellor, had ordered the watchdog to look at whether the scrapping of the so-called “tourist tax” would boost the economy. In the end, the OBR didn’t believe the evidence, and the policy went unchanged.

So how independent is the OBR really from the forces of Westminster?

It’s worth remembering that the OBR relies a lot on HMRC and other government departments to provide the assumptions they rely on to complete their evaluation of the economy – meaning it is unlikely to listen to the pleas of a single constituency.

Ahead of the Budget, the Treasury produces an initial estimate of how much it believes it can generate from individual tax policies. It is then up to the OBR whether to certify this estimate.

A so-called “policy costings steering group” led by Treasury officials – as opposed to politicians – meets with the OBR, HMRC and the Department for Work and Pensions to examine each policy with a fine-toothed comb ahead of any Budget.

A secondary assessment of policies on the wider economy is then conducted by the OBR entirely independent of these discussions and Treasury officials are rarely consulted during this process.

The OBR is extremely wary of relying on single studies or just taking the Government’s word for it, particularly when it comes to welfare. It favours international evidence or tried and tested policies that can be traced back for years or even decades.

One case burned the OBR so badly that it decided never again to rely on government pledges for its calculations.

Back in 2019, the watchdog laid out in granular detail how things had gone wrong after blindly adopting government “aspirations” of cutting welfare into their forecasts.

The decision to change welfare benefits (replacing Disability Living Allowance with Personal Independence Payment in 2013) was mainly a cost-saving exercise that the then-chancellor George Osborne hoped would cut claims and spending by 20pc.

At the time, the OBR assumed his reforms would lead to 600,000 fewer people claiming Personal Independence Payment and a cut in disability benefits spending of around £2.8bn – or 25pc – mainly because the government said it would.

However, the opposite happened and claims rose. After some soul searching, the watchdog vowed never to factor any welfare reforms into their forecasts again unless there was a “clear and credible plan for implementation”.

It warned: “Mere aspirations are not enough. We would no longer certify the scorecard cost or yield of policy proposals where the amount of detail is as sparse as was the case for PIP.”

With nearly three weeks to go before the Budget, what’s clear is that businesses are crying out for stability.

A survey by the Institute of Directors warned that confidence was “at rock bottom”. Bosses said they expected “the worst”, which had created a chilling effect driven by uncertainty about tax rises.

Many have not recovered from Ms Reeves’s record £40bn raid last year.

Along with the housebuilders, Britain’s biggest supermarket bosses have also recently gone public with a warning that a fresh tax raid will drive up prices for hard-pressed shoppers.

The open letter, signed by the bosses of Asda, Tesco, Sainsbury’s and Morrisons said fresh levies that hit supermarkets will drive up inflation.

Peter Kyle, the Business Secretary, says he recognises the plight faced by business.

“Taxes on business and taxes overall need to come down, but they need to come down responsibly,” he says.

The key to that, he claims, is faster growth. They can only come down “once we have got the proper sustained levels of economic growth that will move the needle”.

The trouble is, the OBR is expected to downgrade its assumptions for long-term growth at the Budget in a move that will blow a £20bn hole in the public finances.

Kyle insists the Government is determined to turn things around, pointing out that growth in the first half of this year was in fact the strongest in the rich club of nations.

“We accept that too many businesses and too many people don’t feel the benefits [of growth] in their daily lives,” he says.

“We can’t turn around a country in a year and a half [but] I hope when people see the targeted measures, the broader deregulatory measures, on the reforms that we are acting so swiftly on that [they will] get a sense of the zeal and energy that I’m bringing to this job.”

However, he can’t promise that businesses will be spared in the Budget.

“I can reassure them that their interests and the interests of our economy and people right across the UK will always be put first. We are acting in the national interest, not in a manner that will leave generations to come to pick up the pieces of our decisions today.

“That can only come if we get the foundations and we get the fundamentals of running an economy right.”

The only problem is that those foundations are on shaky ground.

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