The ‘mini budget’ announced at the end of September has had significant consequences for the country and the prime minister.
A plan to end the 45 per cent top rate of tax was reversed after just ten days, amid turmoil in financial markets and criticism from across the political spectrum.
Liz Truss and chancellor Kwasi Kwarteng were also criticised after it emerged the independent Office For Budget Responsibility were not asked to provide forecasts to accompany the mini budget, called the Growth Plan.
In an interview for the Laura Kuenssberg on Sunday programme on 2 October, the prime minister echoed statements made by the treasury minister, Andrew Griffith, that there wasn’t time for the OBR to produce forecasts for the statement.
Ferret Fact Service looked at this claim and found it Mostly False.
The chancellor, Kwasi Kwarteng, unveiled the Growth Plan on 23 September 2022. It contained a number of changes to taxes in England and Wales including cutting the basic rate of income tax from 20 to 19 per cent and removing the top rate of tax, which had been set at 45 per cent.
This led to controversy, and considerable negative effects on stocks, bonds and the market price of the pound. After ten days of pressure, including criticism from the International Monetary Fund (IMF) and an intervention in the bond market from The Bank of England it was announced that the top tax rate would be reinstated.
As opposition to the policy developed, the economic justification of the policy was questioned by politicians and commentators.
A number of politicians and policy groups complained that independent economic forecasts were not released alongside the Growth Plan, which was described as a mini-budget.
The OBR is committed to releasing at least two forecasts in each financial year. The chancellor decides the dates when these will be released, with one accompanying the Budget.
Instead the government announced that an OBR forecast will be published on 23 November, when the chancellor plans to outline a medium-term fiscal plan. However, Kwarteng later said this would be brought forward to October.
Financial forecasts and scrutiny of government policy costs are produced for the government by the independent fiscal watchdog the Office for Budget Responsibility (OBR), which was set up in 2010 to “provide independent and authoritative analysis of the UK’s public finances”.
The prime minister and treasury minister suggested in media appearances that there wasn’t time for the OBR to provide forecasts to be published with the Growth Plan.
In her interview with Laura Kuenssberg, Truss said that developing OBR forecasts was an “iterative process” in which “the policies are fed in, the forecast is then made and it develops over time” and that the government “simply didn’t have time to go through that process”.
However, this process can be sped up in exceptional circumstances. In a 29 September response to SNP MPs Ian Blackford and Alison Thewliss, the chair of the OBR, Richard Hughes, said that the OBR had produced a fiscal forecast for the new chancellor when he took office.
He then stated that the OBR had offered to produce an update to that forecast to “reflect the economic and fiscal impact of any policies the Government announced in time for it to be published alongside the ‘fiscal event’ planned for later in the month”. This ‘fiscal event’ was the Growth Plan.
Hughes’ letter also stated that the OBR was “not commissioned to produce an updated forecast alongside the Chancellor’s Growth Plan on 23 September” but “would have been in a position to do so to a standard that satisfied the legal requirements of the Charter for Budget Responsibility enacted by Parliament”.
This letter is supported by a previous correspondence published on the OBR website between its chair and MP Mel Stride on 26 August, which sets out examples of when forecasts have been developed more quickly than the ten-week process.
These included a near-term economic forecast at the outset of the Covid-19 pandemic in the UK and a truncated process “due to exceptional circumstances in respect of Brexit deadlines”, which was then cancelled.
However, Hughes said in the correspondence with Stride that a forecast that was expedited for the September announcement would “require some reduction in the breadth and depth of the analysis and information”.
Ferret Fact Service verdict: Mostly False
The prime minister’s claim that there wasn’t time for the Office for Budget Responsibility to produce a financial forecast to be published with the Growth Plan is not supported by the OBR itself. While it is accurate to say that the usual process takes a significant period of time, the OBR has produced forecasts in a shorter than normal timescale, and the watchdog’s chair stated that it would have been able to produce one that satisfied its legally required standards, although the depth of its analysis would be reduced.
Cover image thanks to Policy Exchange and DFID – UK Department for International Development.
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