Rishi’s tax rises were based on wildly inaccurate forecasts, says Sir John Redwood MP
Does the Office for Budget Responsibility behave remotely responsibly?
Montage © Facts4EU.Org 2022
The OBR is as anti-Brexit as the Treasury and its forecasts are equally unreliable
Yesterday former Cabinet Minister the Rt Hon Sir John Redwood MP revealed the shocking inaccuracies in the forecasts of the OBR, on which Chancellors base their tax and spend decisions. Rishi Sunak is basing his current insistence on tax rises on the advice of this organisation: the ‘Office for Budget Responsibility’.
The differences in the actual figures compared to the OBR’s forecasts are breathtaking.
Brexit Facts4EU.Org Summary
The OBR’s forecasts versus the reality
1. Government borrowing
- OBR borrowing forecast July 2022 : £131.2bn LESS than forecast in Mar 2021
- It’s even £48.3bn LESS than they forecast only in October last year
- May 2022 : £3,312,568 - a 24.7% increase since the EU Referendum
2. Tax revenues and Government spending
- Tax revenues are £77bn MORE than the OBR forecast
- In addition, the OBR overstated Government spending by £48.7bn
[Sources: Sir John Redwood MP | OBR 21 July 2022.]
3. Relevance to Brexit and to the cost of living crisis – see below.
Here is the relevance to Brexit
The mandarins leading the OBR and responsible for its forecasts are generally taken from the Treasury and the Bank of England.
On the OBR’s website they say:-
“The new trading relationship between the UK and EU, as set out in the ‘Trade and Cooperation Agreement’ (TCA) that came into effect on 1 January 2021, will reduce long-run productivity by 4 per cent relative to remaining in the EU.”
- OBR website, accessed 22 July 2022
Looking back at their musings on their 2016 predictions, they use phrases such as “has held up better than expected” for a variety of economic indicators.
It must be remembered that in 2016 the Treasury produced a forecast predicting job losses of 500,000-820,000 if the British people voted to leave the EU. In fact the absolute opposite was the case: employment rose by more than this.
And here is the relevance to the cost of living crisis and Rishi’s tax rises
Some funny numbers from the Treasury and OBR
By the Rt Hon Sir John Redwood MP, with permission
“The OBR has had to explain why it was so far out in its forecasts of the deficit and borrowings last year. They have written:
‘Our latest forecast for ( Central government borrowing) 2021-2 is £48.3bn below the October forecast and £131.2bn below our March 2021 forecast (the Budget).’ They accept they underestimate tax revenues by a massive £77bn and overstated state spending by £48.7bn. It should be easier to forecast what you spend when you are running the spending controls.
“We can all make mistakes. Forecasting is difficult. What is more difficult to forgive is that this was not the first time they have underestimated the revenues and overstated the deficit. Worse still is they used their precise forecasts of revenue and deficit to tell the Chancellor he needed to raise more taxes to reduce the gap between spending and taxing. It turns out they need not have asked him to do that as the numbers were so much better than the numbers they tried to create with tax rises. So when I am asked how do we pay for the tax cuts, the first answer is we are so far ahead of plan there is no problem. The second answer is if you cut the right tax rates to a sensible amount you can end up with more growth and more revenue, not less.
“The Treasury also needs to come clean about the debt interest. They have been using their current high figure of £83bn which includes index costs on the repayment of inflation linked debt which does not entail making any cash payments before redemption. They use this figure to scare politicians into accepting more austerity to control the debt interest. What they omit to point out is on their definition of debt interest they forecast a collapse in the cost of it to £46.7bn by 2024-5. That is a fall of £36.3bn or 44% in debt interest.
“The Treasury has a tradition of overstating deficits when there is good growth and understating them in recession. There is also a danger their policy advice based on very wrong forecasts could drive us unnecessarily into recession.”
- The Rt Hon Sir John Redwood MP, 21 July 2022
Just who/what exactly is the ‘Office for Budget Responsibility’?
The ‘Office for Budget Responsibility’ (OBR) is the ‘independent’ organisation set up by pro-EU Chancellor George Osborne in 2010. It is led by three people who have executive responsibility for the core functions of the OBR, including the judgements reached in its forecasts.
These individuals are typically plucked from the Treasury and Bank of England. Here are the opening remarks of the OBR’s first Chairman in 2010.
"It is quite remarkable that the Chancellor has given us authority to produce independent forecasts for the budget and the pre-budget report and to provide a public assessment of the action needed to achieve his fiscal mandate.”.
"We are not claiming that we shall get the fiscal forecasts right. Above all, we shall be emphasising the risks and uncertainties; but every judgment will be ours and we guarantee the independence and integrity of our work…. We hope that the result will be greater credibility and an improvement in the quality of the fiscal decisions that will have to be made."
- - Sir Alan Budd, first Chairman of OBR, former chief economic adviser at the Treasury and one of the first members of the Bank of England's monetary policy committee, 2010
Observations
Who will shake this rotten tree?
One of the triumvirate of the OBR’s forecasters and leaders is a part-time professor and is a member of the Commission of the Central Bank of Ireland – an EU member country.
If ever there were a classic example of the endemic rot at the heart of the Civil Service, surely this is right up there. How is it conceivable that a man responsible for advising the UK Government on its budget can also be working for the Ireland’s Central Bank?
Tax rises based on flawed economic predictions
Over the years we have pointed out many times the nature of forecasts from ‘experts’ regarding the performance of the UK’s economy post-Brexit. These have not only proved to be wrong, but often disastrously so.
Now we have the eminent MP Sir John Redwood being obliged to point out that the OBR’s forecasts – on which the Chancellor’s tax and spend decisions are based – have been deeply flawed. This affects our taxes, the services the Government provides, investment in our future, and a host of other key policy decisions.
We believe the Facts4EU.Org team’s former canine mascot – a bearded collie called Max, sadly no longer with us – would have had a better chance at forecasting Brexit Britain’s economic future than some of the mandarins in Whitehall.
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[ Sources: OBR | Treasury | Sir John Redwood ] Politicians and journalists can contact us for details, as ever.
Brexit Facts4EU.Org, Fri 22 July 2022
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