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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 mid-next month, in time for an emergency budget.

In a letter to parliamentariansthe tax watchdog said it had been working on a forecast since late July and could publish one that “meets legal requirements,” ready for Sept. 14 or Sept. 21.

The letter will put pressure on the two conservative candidates for leadership, 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 rather announce tax cuts, the elimination of green taxes on utility bills and other unspecified support without the OBR’s input, citing the many support packages that have been launched during the pandemic and more recently by Sunak were announced when he was chancellor.

The letter from the OBR highlights reasons why the new prime minister and chancellor might decide to wait a few weeks to get a more informed forecast. While the tax watchdog said it could meet regulatory standards for an emergency budget in time, Richard Hughes, its chairman, said these are well below the level of detail it normally produces.

“We would necessarily have to shorten our published material,” wrote Hughes, 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 less historical and international comparisons that help put the forecast in context”.

If she wins the leadership election, Truss and her new chancellor, Kwasi Kwarteng, the current secretary of state for business, energy and industrial strategy, are not expected to ask the OBR to make a forecast in September. But according to the law, the finance ministers must make two independent forecasts every financial year.

In practice, that would mean that the new chancellor would have to ask for one OBR forecast later this fall.

Hughes said any forecast in September could assess the impact of the 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 rollback of a previously announced measure. . . it would be easier to show the costs and economic impact”.

Truss proposes to reverse increases in both national insurance and corporate taxes, and Hughes’ words show that the OBR has no intention of stating that its proposals for tax cuts will boost growth in the medium term, as opposed to Truss’ claims. When the fiscal watchdog reviewed the imposition of these taxes, it said they would only put “a modest drag on GDP in the medium term,” so it couldn’t suggest their removal would boost growth rates.

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

“Given the very significantly increased economic challenges since the last OBR forecast in March and the likely important measures to be put forward in September by who will be our next prime minister, it is vital that the OBR be applied for by whomever Chancellor is also in the new government to publish as complete a forecast as possible at that time,” he said.

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