The Office for Budget Responsibility was created in 2010 to provide independent and authoritative analysis of the UK’s public finances. It is one of a growing number of official independent fiscal watchdogs around the world.
We have five main roles:
1. Economic and fiscal forecasting
We produce detailed five-year forecasts for the economy and public finances twice a year. The forecasts accompany the Budget Statement (usually in late November) and the Spring Statement (usually in March). They incorporate the impact of any tax and spending measures announced in those statements by the Chancellor.
The details of the forecasts are set out in the Economic and fiscal outlook (EFO). Our annual Forecast evaluation report (FER), published each autumn, examines how they compare to subsequent outturns and draws lessons for future forecasts. For a description of the forecasting timeline, read about our forecast process on the forecast methodology page.
2. Evaluating performance against targets
We use our public finance forecasts to judge the Government’s performance against its fiscal targets and target for welfare spending. In January 2017 the Government set itself two new medium-term fiscal targets: first, for the structural deficit (cyclically adjusted public sector net borrowing) to be below 2 per cent of GDP by 2020-21; and second, for public sector net debt to fall as a share of GDP in 2020-21.
In each EFO, we assess whether it has a greater than 50 per cent chance of hitting these targets under current policy. Since March 2014, the government has also set a self-imposed cash limit on a subset of its social security and tax credit spending (the ‘welfare cap’). In Autumn Statement 2016 the Government redefined the cap so that it applies only in 2021-22, preceded by a ‘pathway’ to that fixed date. The Charter requires the Government to set a new welfare cap in the first Budget of a new Parliament so in Autumn Statement 2017, the cap was adjusted and applied to 2022-23. We monitor progress against the pathway and assess whether or not the government is on course to meet the cap in the target year in each EFO.
Our annual Welfare trends report (WTR) examines the drivers of welfare spending, including both those elements inside and outside the cap.
3. Sustainability and balance sheet analysis
We assess the long-term sustainability of the public finances: Our Fiscal sustainability report (FSR) sets out long-term projections for different categories of spending, revenue and financial transactions, and assesses whether they imply a sustainable path for public sector debt.
The FSR also analyses the public sector’s balance sheet, using both conventional National Accounts measures and the Whole of Government Accounts (WGA) prepared using commercial accounting principles. From 2016, the FSR will be published once every two years, reflecting the frequency with which the Office for National Statistics updates its population projections.
4. Evaluation of fiscal risks
Every two years we produce a comprehensive review of risks from the economy and financial system in the Fiscal risks report (FRR). The first FRR was published in July 2017 where we analysed tax revenues, public spending and the balance sheet, and included a fiscal stress test. In addition to producing central forecasts and projections for the public finances, the EFO and FSR include discussion of the risks to those forecasts and projections (both upside and downside). The WGA also provides further information on specific fiscal risks, notably contingent liabilities (such as government guarantees), which we discuss in the FSR.
5. Scrutinising tax and welfare policy costing
We scrutinise the Government’s costing of individual tax and welfare spending measures at each Budget. The Government provides us with draft costings in the run-up to each statement and we subject these to detailed scrutiny and challenge.
We then state in Annex A of each EFO and in the Treasury’s policy costings document whether we endorse the costings that the Government finally publishes as reasonable central estimates and whether we have used them in our forecasts. We also give each costing an uncertainty rating, based on the data underpinning it, the complexity of the modelling involved and the possible behavioural impact of the policy.
These five roles all focus on the public finances at a UK-wide level. But the Government has also asked us to forecast the receipts from those taxes that it has devolved – or intends to devolve – to the Scottish and Welsh governments. Our Scottish and Welsh revenue forecasts are published alongside our EFOs.
In support of these activities, we undertake a variety of research projects through the year. We publish briefing material to inform people about our work, and we provide a same-day briefing on the monthly public finances statistics, to help people interpret the latest data in the light of our most recent forecasts.
BRC members and OBR staff also give talks and presentations at external events. The Chairman discussed the role of the OBR, and the difference that it had made after its first three years in existence, in a lecture entitled Britain’s fiscal watchdog: a view from the kennel on 9 May 2013.
We summarise our activities each year in our Annual Reports and accounts.
Organisational structure of the Office for Budget Responsibility