OBR a backseat driver with out-of-date maps, thinktanks tell Rachel Reeves

Rachel Reeves must reform the Office for Budget Responsibility (OBR) to open the way to more public investment, an alliance of thinktanks has argued ahead of the chancellor’s spring forecast on Tuesday.

With Keir Starmer’s government under intense pressure after Labour’s defeat by the Greens in Thursday’s Gorton and Denton byelection, the thinktanks called on Reeves to review the watchdog’s remit.

The coalition includes the Labour group Progress, usually considered on the right of the party, the leftwing thinktanks the New Economics Foundation (NEF) and Common Wealth, and the feminist Women’s Budget Group.

They said: “It has become increasingly clear that our current framework is contributing to instability, short-termist underinvestment and a lack of focus on long-term risks and opportunities.”

Reeves is expected to focus in the spring forecast on Labour’s progress in restoring fiscal stability and point to evidence of a nascent economic recovery.

Louisa Dollimore, the director of strategy at the Good Growth Foundation, which convened the group, said: “The OBR is a backseat driver with out-of-date maps: it obstructs long-term planning and investment at a moment when Britain needs both.”

Hannah Peaker, the NEF’s deputy chief executive, said: “While independent scrutiny of the government’s spending plans is important, our current system means small changes in uncertain forecasts lead to governments making kneejerk policy changes of huge consequence. This is no way to run an economy.”

Last week the Institute for Fiscal Studies called for the fiscal rules to be overhauled.

Some economists complain that the OBR takes insufficient account of the potential benefits of future government investment, and that the way it has been set up to deliver a pass-fail verdict on the chancellor’s fiscal rules leads to hasty decision-making – such as the £5bn in welfare cuts made in last year’s spring statement.

Reeves has since asked the OBR, which was established by George Osborne as chancellor in 2010, to give its verdict on her fiscal rules just once a year, at the autumn budget. The thinktanks have called on her to go further.

Adam Langleben, the executive director of Progress, said: “The OBR was created for an era defined by austerity, and while it can clearly count the upfront cost of investment, it too often misses the long-term value, whether that’s a healthier workforce, better housing or modern transport.

“Its judgments should guide decisions, not shut down ambition. The real risk isn’t investing in Britain’s future, it’s leaving things exactly as they are.”

Reeves has changed the fiscal rules to allow the Treasury to borrow more to invest, and significantly increased taxes to fund public services, but some Labour MPs remain concerned that the party has been too cautious on tax and spend.

However, the former OBR directors Richard Hughes and Robert Chote said at a hearing before the Treasury select committee last week that successive governments had overspent.

Hughes, who resigned last year after the accidental early release of the OBR’s budget forecasts, told MPs: “Most surprises that governments face tend to be bad ones, especially these days, and so if you don’t take account of them, you’re always going to end up with this upwards drift … of deficits going up and debts going up.”