The OBR's Damning Budget Verdict gives the Tories Ammunition for Years

The OBR’s Damning Budget Verdict gives the Tories Ammunition for Years

The OBR’s damning Budget verdict has given the Tories ammunition for years, says Fraser Nelson in the Telegraph. When it seemed politically expedient Labour pledged its devotion to the OBR. It is about to face the consequences. Here’s an excerpt.

The Chancellor’s adversary is not anyone in the Conservative Party but Richard Hughes, a softly spoken American who runs the Office for Budget Responsibility (OBR). He has put each of her main arguments to the test. What will all of this borrow-and-spend really accomplish? Will those “working people” be better off? By the end of the 200-page report on her Budget, not much remains of the arguments with which Starmer and Reeves fought the last election.

Let’s start with the most obvious: that “working people” don’t suffer from an increase in employers’ National Insurance. Companies, of course, cannot pay tax. Only people can. The OBR report doesn’t just explain this but gives the breakdown: 75% of this “employers’ National Insurance” will be borne by workers in the form of lower wages and the rest in higher prices. …

During the election, we were told that the first of Labour’s five missions was to “secure the highest sustained growth in the G7”. But the OBR finds no Reeves growth effect: not by the next election anyway. But it gets worse. Net migration is forecast to settle at an annual 350,000, equivalent to a city the size of Sunderland every year for the foreseeable. So GDP per capita will grow by a desultory of 1.2% a year, on average, for the rest of the decade. The United States, by comparison, is expected to manage 1.7%.

All this might be easier to swallow if accompanied by fiscal or social repair. One of Starmer’s most ambitious and laudable goals is commitment to taking the employment rate to an all-time high of 80%. This would need serious welfare reform and an end to the appalling practice of writing off thousands of people every day as long-term sick. But it seems this has also been abandoned.

Instead, tax rises have been concentrated on the low-paid. This will hit the overall employment rate, now forecast to go down even faster than before. To govern is to choose, and Reeves has gone for tax over employment. It will also be hard for the Chancellor to keep talking about putting public finances “on a sustainable footing” now that the OBR has shown that she is borrowing £140 billion more than the Tories had planned to. In today’s debt markets, such fiscal irresponsibility carries a cost.

The OBR spells it out: her Budget will push up borrowing costs, bank rates and inflation – meaning she’ll have to pay £5.5 billion in higher debt interest alone. It rises to £10 billion when factoring other the effects of raising rates.

The OBR even spells out a Reeves effect on mortgages. They’ll go up if (as it explains) her debt splurge nudges up Bank of England rates. The impact sounds small, at a quarter-percentage point, but works out at £450 a year for the average borrower. Add the National Insurance increase and it leaves disposable incomes even lower than it had previously forecast. At this point, it starts to become hard to see who is being helped in this Budget.

Worth reading in full.