The benefits of having only one OBR forecast a year increasingly outweigh the costs

There are serious problems with how successive UK governments – including the current one – have approached fiscal policy making and compliance with their fiscal rules. As we highlighted last year, there is far too much ‘fine tuning’ of policy (read: tinkering) in response to frequent movements in highly uncertain economic forecasts. 

Fiscal rules are supposed to help governments overcome the political tendency towards excessive short-term borrowing and so enable greater fiscal sustainability and better long-term policy making. But, too often, governments have either gamed the rules or made rapid, poorly designed changes in response to often relatively small changes in medium-term economic forecasts. The latest spring statement was a case in point.

The latter tendency has been exacerbated by successive chancellors maintaining ever smaller amounts of so-called ‘headroom’ against their fiscal rules. When this is the case, even a small downgrade to the economic forecast can push them off course and increase the pressure they feel to do something. The result is that political behaviour in response to well-intentioned mechanisms has both undermined the quality of UK fiscal policy and failed to deliver genuine fiscal sustainability.

Recent changes to the fiscal rules and framework have been positive

The new government made various changes to the fiscal rules and framework last autumn. Many were changes we advocated for, and helped to address some of the problems that had plagued the previous government’s fiscal rules:

• The new rules distinguish between capital and day-to-day spending to create more scope for borrowing for the former and reduce the temptation simply to cut capital spending when money is tight.
• Shifting towards targeting debt and deficit three years ahead, rather than five years – coupled with the new timetable norm of publishing firm three-year spending plans – significantly reduces the scope for government to game the rules by pencilling in implausible tax rises or unspecified spending cuts four and five years ahead. But it retains flexibility to adjust gradually to economic shocks.
• Using a range, rather than a point, target for the current budget balance should reduce the pressure on government to respond to every forecast change – though this feature only comes into effect in 2027.

The International Monetary Fund (IMF), in its concluding statement on its recent mission to the UK, rightly welcomed these changes to the fiscal framework, noting that they “enhance its credibility and effectiveness”. ⁶ https://www.imf.org/en/News/Articles/2025/05/27/cs-uk-aiv-2025  

Intense media and political focus on ‘headroom’ creates unhelpful pressure on the chancellor

The IMF is also right to note that the government is currently struggling to adhere to its commitment to hold only a single annual fiscal event: a budget in the autumn, with a forecast ‘update’ – not accompanied by policy changes – each spring. The aim was to move the UK into line with standard practice elsewhere in the world, and to improve policy making by allowing more time for policy development and making better use of Treasury officials’ time. 

However, the most recent spring statement showed how difficult the chancellor finds it to present a new – worse – forecast without announcing some kind of policy reaction. In what seems to be a uniquely British obsession, there is intense media and political scrutiny of the precise level of the government’s ‘headroom’ against its fiscal rules. This comes at the expense of focus on fundamental fiscal sustainability – or an acknowledgement that, when the average borrowing revision every six months is close to £20bn, whether the government has £0bn, £5bn or £10bn of ‘headroom’ is essentially immaterial to its chance of actually meeting the rules. This is extremely problematic.

Simply asking the OBR not formally to assess rule compliance will not be enough

The IMF made some specific suggestions for countering this tendency:

1. That the OBR should “de-emphasize point estimates of headroom” in its assessments of rule compliance.
2. That the OBR should only formally assess the fiscal rules once a year, at the time of the fiscal event.

The first is a worthy suggestion that the OBR should adopt – but on its own is unlikely to substantively change how the media cover these issues and the focus of UK debate. The Bank of England has – for years – published fan charts emphasising the uncertainty around its inflation forecasts to try to reduce attention on the central point forecast, but media outlets still report only the central forecast.

The second would be hard to enact without other wider changes. If the OBR were to publish a second economic and fiscal forecast in the spring but not formally assess compliance with the rules, others would; if it published a detailed fiscal forecast, it would be trivial for external analysts to assess compliance with the rules, particularly the current budget balance rule. 

If instead the OBR were simply to publish a more pared back forecast that made this external assessment harder – for example, updating only its economic but not fiscal forecast – it would beg the question of what the value of that exercise is. Many other organisations produce more regular macroeconomic forecasts: is it really important for the OBR also to do so? 

Cutting down to one forecast a year may be the only answer

Taking the more radical step of simply asking the OBR to produce only one fiscal and economic forecast a year would have more impact on the political, public and financial market debates that so heavily skew chancellors’ behaviour in the UK. It would also free up the OBR’s time to focus on analysis where they can add more value. ⁸ One important aspect of the OBR forecasts that no other organisation replicates is the year-ahead forecast for gilt issuance, which is very important for certain financial market players and for government’s debt management. But there is no reason that the OBR could not forecast this component without needing to do a full five-year economic and fiscal forecast.  In Strengthening the UK's fiscal framework, we concluded that: 

“If another chancellor commits, but fails to maintain, a single fiscal event per year, further reforms might be necessary….The Charter for Budget Responsibility could be changed to require the OBR to produce a minimum of one forecast per fiscal year, rather than two.” 

This would move away from the practice that has been legislated since the 1975 Industry Act. But it increasingly seems that the time has come. The government should go further than the IMF recommend and require the OBR to publish only one forecast a year – in the interests of policy stability and better long-term policy making.