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Treasury watchdog readies UK economic forecast for emergency budget

The Office for Budget Responsibility confirmed on Friday that it would be ready to publish an up-to-date forecast for the UK economy and public finances by the middle of next month, in time for an emergency budget.

In a letter to MPs, the fiscal watchdog said it had been working on a forecast since late July and could publish one that “meets the legislative requirements” ready for either September 14 or September 21.

The letter will put pressure on the two Conservative leadership candidates, Rishi Sunak and Liz Truss, to announce their planned support for the economy and energy bills alongside an independent economic assessment.

Truss’s team has so far said it would prefer to announce tax cuts, the removal of green levies on energy bills and other unspecified support without the OBR’s input, citing as precedent the many packages of support that were announced during the pandemic and more recently by Sunak when he was chancellor.

The OBR’s letter highlights reasons the new prime minister and chancellor might decide to wait a few weeks to get a more considered forecast. While the fiscal watchdog said it could meet the standards required in law in time for an emergency budget, Richard Hughes, its chair, said these fell far short of the level of detail it normally produced.

“We would necessarily have to pare back our published material,” Hughes wrote, adding that this would mean the forecast “would be shorter, with less detailed breakdowns of some economic and fiscal aggregates, less commentary on smaller elements of the forecast, and fewer historical and international comparisons which help to put the forecast in context”.

If she wins the leadership election, Truss and her new chancellor, expected to be Kwasi Kwarteng, the current secretary of state for business, energy and industrial strategy, would not be required to call on the OBR to produce a forecast in September. But, by law, Treasury ministers have to have two independent forecasts produced every financial year.

In practice, that would imply that the new chancellor would need to ask for one OBR forecast later this autumn.

Hughes said that any forecast in September would be able to assess the impact of tax changes proposed by the new prime minister.

But in what the Truss team will see as a sting in the tail, he added that “where policy announcements involve the reversal of a previously announced measure . . . it would be more straightforward to reflect its cost and economic impact”.

Truss is proposing to reverse rises in both national insurance and corporate tax, and Hughes’ words show that the OBR is in no mind to declare that her tax cut proposals will boost medium-term growth, contrary to Truss’s claims. When the fiscal watchdog assessed the imposition of these taxes, it said they would impose only “a modest drag on GDP in the medium term”, so it could not suggest their removal would raise growth rates.

Mel Stride, chair of the Treasury committee and a Sunak supporter, welcomed the OBR’s response.

“Given the very significantly increased economic challenges since the OBR’s last forecast in March and the likely significant measures to be brought forward in September by whoever becomes our next prime minister, it will be vital that the OBR is requested by whoever is chancellor in the new government to publish as full a forecast as possible at that time,” he said.

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