The forecast process
As soon as the Chancellor of the Exchequer sits down after delivering his Budget or Autumn Statement to Parliament, the OBR publishes a forecast for the economy and the public finances that incorporates the impact of the policy decisions he has just announced. This appears in our Economic and fiscal outlook publication.
The publication of the EFO marks the culmination of a lengthy process of forecast preparation and policy scrutiny in the run-up to the statement. The main steps are as follows:
- The Charter for Budget Responsibility requires the Chancellor, under normal circumstances, to give the OBR at least 10 weeks’ notice of a Budget or an Autumn Statement. Once the date is set, the OBR and the Treasury agree a timetable according to which we will exchange the information necessary for the OBR to produce the economic and fiscal forecasts and for the Treasury to produce its ‘scorecard’ of costings for the policy measures he will announce.
- The OBR begins by preparing a first-round ‘pre-measures’ economic forecast, drawing on data released since the previous forecast and some preliminary judgements on the outlook for the economy. Using determinants derived from this forecast (such as the outlook for wages, profits, consumer spending, unemployment and inflation), the OBR then commissions forecasts for each individual tax and spending stream from HM Revenue and Customs, the Department for Work and Pensions and other government departments and agencies. We then collate these individual forecasts and use them to generate aggregate forecasts for spending and receipts and for the various measures of public sector borrowing and debt.
- The results of the first-round economic and fiscal forecasts are then sent to the Chancellor, typically around five weeks before the statement, together with the our initial assessment of the margin by which it believes the Government is likely to hit or miss its fiscal targets in the absence of new policy measures.
- The pre-measures economic and fiscal forecast then undergoes two further iterations, each incorporating new data plus further judgements on the economy and on the detail of the tax and revenue forecasts. The experts in HMRC, DWP and the other departments provide very useful advice on the various forecast elements, but the ultimate judgements on which models to use, how to interpret recent outturn data etc are taken by the OBR’s Budget Responsibility Committee.
- The Chancellor typically receives the final, third-round pre-measures forecast around 2 weeks before the statement. This provides a stable base from which he can take his final policy decisions, knowing what he needs to do to meet or miss his formal fiscal targets or other objectives with whatever margin he deems appropriate. (The Chancellor may ask us to incorporate some high-level decisions on public spending at this stage, to avoid big or unexpected movements in the forecast at the end of the process.)
- At the same time as working on the forecasts, the OBR scrutinises the tax and welfare spending measures that the Chancellor is thinking of including in the statement. First the Treasury shows us a draft ‘scorecard’ – an initial list of possible measures. We then discuss the scrutiny we think each measure would require with the Treasury and the responsible department, based on its complexity and similarity to previous measures. The department will then send a ‘costing note’ to the OBR, setting out the details of the policy and estimating the amount of money it will raise or cost in each year of the forecast. The OBR discusses the analysis with the department and the Treasury, suggesting changes and iterating until we are happy to endorse the estimates as ‘reasonable and central’ or until the Treasury and we agree to disagree (which has not happened yet). In the case of tax measures, these discussions focus on identifying the relevant tax base and judging the potential behavioural impact of the measure from the experience of similar measures or from estimates of relevant elasticities.
- At the outset of the forecast process, the OBR and the Treasury agree deadlines by which the OBR must be told of a proposed policy measure if it is to guarantee: first, to include its impact in the final post-measures economic forecast, and; second, to reach a judgement on the scorecard costing. The deadline to notify us of potentially ‘economy-moving’ measures is typically around 5 days before the statement.
- The OBR does not scrutinise the spending of individual Whitehall departments on public services and capital investment. Instead it takes a judgement on the extent to which departments in aggregate will over or under spend the Resource and Capital Departmental Expenditure Limits (RDELs and CDELs) set for them by the Treasury. For those years of the forecast for which detailed departmental spending plans have not yet been announced, we ask the Treasury what aggregate DEL limits they wish us to assume and then apply a under/overspending judgement as we see fit.
- During the week before the statement, the OBR prepares its final fourth-round economic and fiscal forecasts for publication, by amending the final pre-measures forecast to reflect the economic and fiscal impact of the scorecard package the Chancellor ultimately decides upon. The final scorecard can look very different from the first draft – some measures drop off as the statement draws closer, while others are added on.
- Even for measures that remain on the scorecard throughout, the precise details – the exact changes in tax allowances and rates, for example – may be refined during and after the scrutiny process. Minor changes can be incorporated into the forecast after the deadlines referred to above, with the OBR typically closing the absolutely final post-measures forecasts on the Friday prior to the statement. This allows the Treasury to fine tune the measures to achieve the ‘bottom line’ of net giveaways and takeaways that it wants in each year.
- On the day of the statement itself, we publish the final post-measures forecasts in the Economic and fiscal outlook, along with an explanation of the impact that the scorecard and other policy measures have had on the forecasts and on the Government’s performance against its fiscal targets. Separately, the Treasury publishes its final scorecard costings, alongside other documentation on the economy and its policy decisions. In Annex A of the EFO, we explain whether we have been willing to certify each scorecard measure costing that the Treasury ultimately decides upon as reasonable and central (and, if not, what alternative costing we have included in our forecast). We also give each costing an uncertainty rating, based on the complexity of the modelling, the quality of the data and the nature of the assumed behavioural effects that underpin it. The Chancellor gives his own summary of our forecasts – and the impact that they have had on his policy decisions – when he makes his statement to Parliament. We then hold a press conference to take people through the forecasts in detail and to answer any questions they may have.
Briefing papers describe our work and explain the material we present.
As part of the OBR work programme we will produce Working Papers on topics which will inform discussion on our forecasts.
Discussion and Occasional papers
The OBR publishes Discussion papers to generate debate around key aspects of its work. Our Occasional papers are publications that are not part of a wider set of releases.