OBR watchdog chief admits its borrowing forecasts are ‘almost certain to be wrong’ as Tories seethe over Autumn Statement tax rises
- OBR’s economic forecast is ‘pretty much guaranteed to be wrong’, says chief
- Prof. David Miles concedes ‘central estimate’ is ‘virtually certain’ to be incorrect
- But he insists watchdog’s work ‘can still be useful’ amid backlash from Tory MPs
The Office for Budget Responsibility’s economic forecast is ‘pretty much guaranteed to be wrong’, according to one of the watchdog’s own members.
Professor David Miles, one of three members of the OBR’s executive, conceded the ‘central estimate’ – the economic outcome it considers most likely – produced for last week’s Autumn Statement was ‘virtually certain’ to be incorrect.
His stark admission follows fierce criticism of the OBR’s role as Tory MPs questioned why the watchdog’s forecasts were treated as ‘gospel’.
Some Conservative backbenchers – who are seething over Britain’s tax burden reaching its highest level since the Second World War – even asked whether the OBR was now steering Government policy.
Chancellor Jeremy Hunt used his Autumn Statement to unveil a fresh £54billion package of tax rises and spending cuts in the face of the dire economic warnings from the OBR.
Writing in the Daily Telegraph today, Prof. Miles hit back at critics of the watchdog and insisted its forecasts ‘can still be useful’ – even as he admitted they were ‘100 per cent guaranteed’ to be ‘too high or too low’.
Professor David Miles is one of three members of the OBR’s executive
He blamed the significant rise in energy prices and interest rates since the start of the year for the OBR having last week revised its forecasts for Government debt and GDP growth, compared to those it produced in March.
‘When things like this happen only someone who obstinately refuses to change their views would keep a forecast for the economic path ahead unchanged,’ he wrote.
‘So yes, the OBR changes its forecast all the time. That reflects shocks and more shocks will come. This means our central forecast today is pretty much guaranteed to be wrong.
‘Outcomes even a year or so down the road will not coincide with today’s central forecast. We are 100 per cent guaranteed to have a central forecast that will turn out to be too high or too low.
‘It may seem obvious from this that such forecasts are useless. But a central estimate of an unknown future outcome that is virtually certain to be wrong and changes over time – sometimes suddenly and sharply – can still be useful.’
Chancellor Jeremy Hunt used his Autumn Statement to unveil a fresh £54billion package of tax rises and spending cuts in the face of the dire economic warnings from the OBR
The OBR predicted a 1.4 per cent fall in GDP next year and judged the UK had already entered recession
The watchdog also estimated the cost-of-living crisis would reduce living standards – the real purchasing power of households’ incomes – by a staggering seven per cent over two years
The Government is forecast to borrow 7.1 per cent of GDP or £177billion this year. This is expected to fall to 5.5 per cent of GDP or £140billion next year
Prof. Miles suggested, like a satnav estimating car journey times, the OBR forecast should be seen as ‘an informed guess’.
He added: ‘The OBR gives a best guess of uncertain future outcomes and an indication of how much uncertainty there is around it.
‘It gives an idea of the chances of being one side or the other of a particular outcome some way ahead.
He stressed that ‘the outcome of most interest – and of most use – to the Government is that it hits a target it sets itself’ on managing debt.
The economist also agreed with former Cabinet minister Jacob Rees-Mogg’s insistence that OBR forecasts should not be seen as ‘gospel’.
He continued: ‘The OBR should never be the driver, and it is not; it does not pick the fiscal destinations the Government aims to reach. All it should do is give an idea of the likely difficulty (or ease) of getting there.
‘The OBR is definitely not an oracle; it can only do its best to be a decent satnav.’
After last week’s Autumn Statement, Mr Rees-Mogg claimed the watchdog had ‘let the nation down’ and warned against ‘outsourcing’ fiscal and monetary policy to the OBR and the Bank of England.
‘The Autumn Statement is based on parameters set by the OBR,’ he said.
‘Its forecasts lead to decisions on taxing and spending that may not only be wrong but damaging.
‘Moreover, while the OBR is not held to account for its decisions, the politicians who act under its auspices will be.’
Fellow Tory MP Craig Mackinlay claimed the OBR was ‘out of control and looking increasingly like the puppet-masters of elected Government’.