How Starmer's embrace of the OBR is destroying Labour unity

Telegraph

10-04-2025

It was just a few months ago that Sir Keir Starmer criticised the Conservatives for trying to undermine the OBR.
Following a row with Jeremy Hunt, the former chancellor, over the autumn Budget and the role of the spending watchdog, the Prime Minister's spokesman said: 'The answer is not to blame the referee', as they insisted that Labour will 'back the independent OBR, not trash it'.
The comments signalled Sir Keir's staunch support for the organisation, having previously lauded its work in holding the previous Tory government to account and vowed to strengthen its powers to avoid another Liz Truss-style market meltdown.
However, the Prime Minister's enthusiasm appeared shaken this week when he attacked the OBR over its assessment of his welfare reforms, claiming it had failed to price in the effects of Labour's back-to-work measures.
While subtle in language, Sir Keir's criticism signalled growing discontent with the OBR among the Labour ranks, putting an end to the party's united front on economic policy.
Appearing before the Commons liaison committee, the Prime Minister said: 'On the impact assessments, it is significant to my mind that the ability of any policy or legislation to change any behaviour at all is not priced in, in other words, the OBR has scored nothing against any change here.
'The assumption is that not a single person changes their behaviour. I personally struggle with that way of looking at it because I do think that these measures will make a material difference and they need to make a material difference.'
As well as calling out the OBR in public, it is understood that the Prime Minister has also privately expressed annoyance that the Government is beholden to the watchdog's forecasts twice a year, despite there only being one Budget.
However, sources suggest that the appetite for stripping the body of some of its powers is limited.
'Changing anything to do with the OBR will be difficult,' says a government source.
They added that any move to curtail the OBR would evoke memories of Truss at a time when markets are incredibly volatile.
None the less, the Prime Minister's first attack on the OBR reveals simmering frustrations that are shared by a growing number within his party.
Labour MPs are increasingly unhappy with deference to the watchdog's forecasts, particularly as the Government seeks to balance the books with cuts to welfare benefits.
Patrick Hurley, MP for Southport, followed Sir Keir's comments with a demand that the OBR change its methods or face closure.
'If the OBR won't change its approach so that it supports state-led growth, the Government should abolish it,' he said on social media.
If the OBR won't change its approach so that it supports state-led growth, the government should abolish it. https://t.co/QeKzqZ22Zl
— Patrick Hurley (@patrick_hurley) April 8, 2025
Jon Trickett, MP for Normanton and Hemsworth, also argued that the forecaster has entirely the wrong priorities.
'The record of the Bank of England, OBR and Treasury is abysmal,' he said. 'They serve the City of London's interests, which hold our economy back.'
Rachael Maskell, MP for York Central, weighed into the debate by claiming that the world is too uncertain to place so much focus on two snapshots of the economy each year.
'While an independent economic assessment provides important analysis, this last week of economic shocks demonstrates why its reports cannot be depended on and why political economic management is necessitated,' she says.
Anneliese Dodds, who briefly served as Sir Keir's international development secretary before quitting over aid cuts, raised the topic in her resignation letter.
'Undoubtedly, the postwar global order has come crashing down. I believe that we must increase spending on defence as a result; and know that there are no easy paths to doing so,' she wrote, acknowledging that the aid budget would be up for discussion.
'I also expected we would collectively discuss our fiscal rules and approach to taxation, as other nations are doing.'
However, despite mounting calls for change, the Chancellor has insisted that the fiscal rules are not up for discussion. Ms Reeves maintains, loudly and often, that they are 'iron-clad'.
Other critics argue that the problem lies with the Government, not the watchdog.
'It has always been clear that with £9.9bn of headroom there was going to come more pressure on the fiscal rules. And there is no point in blaming the OBR for that,' says Barry Gardiner, Labour MP for Brent West.
One of the key risks in messing around with the fiscal rules or the OBR risks disturbing already choppy financial markets.
The Government's borrowing costs are already rising, with yields on 10-year and 30-year bonds up steeply amid the chaos of Donald Trump's trade war, eroding much of the Chancellor's headroom yet again.
Andrew Goodwin, at Oxford Economics, says 'it is certainly not a good time to do it right now'.
'If they were to change the remit, it would require some very careful messaging, and they would need to do it in a way that is very clear they are not watering down the OBR's role,' he says.
Paul Johnson, at the Institute for Fiscal Studies, says it makes little sense to complain given that the OBR has been unusually upbeat in its recent assessments of the economy.
'This Government has been unbelievably lucky in the OBR's forecasts,' he says. 'If the Treasury had published forecasts the same as the OBR, there would have been a lot of seriously raised eyebrows, because these forecasts are much more optimistic than the Bank of England's, they are right at the top end.'
If the OBR were abolished, such projections from the Treasury 'would be seen as less credible and bond markets would be more worried,' Johnson adds.
When it comes to Sir Keir's grumbles, the OBR itself said it received the details of welfare reforms too late in the day to fully analyse the economic implications.
There are also fears that past efforts to save money on welfare have not been as successful as hoped, so the watchdog does not want to overestimate the benefit to the public purse.
Andy King, a former official at the watchdog, says: 'The OBR has been burnt by previous welfare reforms that were expected to make material savings but didn't – not least the introduction of PIP, where savings fell spectacularly short of the initial plans.'
Back in 2019, the OBR laid out in fine detail how it was wrong-footed when blindly adopting the government's 'aspirations' of cutting welfare into their forecasts.
George Osborne's decision in 2013 to replace Disability Living Allowance (DLA) for people of working age with PIP was mainly a cost-saving exercise that the then-chancellor hoped would cut claims and spending by 20pc.
But instead of a 600,000 fall in the working age caseload claiming PIP, the opposite occurred.
The OBR projections turned out to be wildly optimistic, as the policy change led to more people being able to claim more money, adding up to £2bn more each year to the welfare bill. And lockdown added to the burden.
The watchdog vowed never to factor any welfare reforms into their forecasts again unless there was a 'clear and credible plan for implementation; mere aspirations are not enough'.
By reigniting pressure on the OBR, Labour is hopeful that it will change the way it scores Government policy to allow for more spending in future.
However, the opposite will happen if OBR officials crack down on the Government's most optimistic assessments.
Whatever happens, there is no doubt that the love-in between Labour and the OBR is over, dismantling the Government's united economic front in the process.