COVID-19 UK Political Analysis – 5th March 2021

There is not much left of George Osborne’s legacy as Chancellor of the Exchequer. His austerity agenda has not only been abandoned but arguably intellectually discredited. His signature policy of driving down Corporation Taxation to one of the lowest rates in the developed world now seems set to be reversed as well. In one key respect, though, Mr Osborne is still a highly influential individual in British economic matters. Before he became Chancellor, the long-established custom had been that the Treasury engaged in its own process of forecasting the future economic outlook. This led to the accusation that this was not a neutral process but one which was open to, at best, political wishful thinking, and at worst, raw political distortion. When in Opposition, Mr Osborne made it clear that he deemed Gordon Brown, Chancellor from 1997-2007, guilty of that charge.

The consequence was the creation of the Office for Budget Responsibility (OBR) in 2010. Economic projections, including the assumptions for revenue, spending and borrowing, were effectively outsourced from the Treasury to a new body which was legally obliged to make such forecasts twice a year. The process was not completely devolved in that civil servants in the Treasury still maintained the capacity to make their own calculations about the economy. They were, nonetheless, constrained by the core projections which the OBR makes on the fundamental numbers for macroeconomic activity. It is simply not politically practical to disregard the OBR’s analysis. Yet this week, the OBR, which in any case has an exceptionally difficult task in anticipating what the economy will look like up to five years hence, had to execute its duties in the immense uncertainty of COVID-19.