As we get nearer to the UK November Budget the leaks and the kite flying are building up. If you feel that it is a particularly long season this tear you are right. What that shows is the pressure that the UK public finances and hence Chancellor Rachel Reeves are under. For her there is also the issue of past rhetoric and promises.
In July, I exposed a £22bn black hole
The Treasury’s reserve, set aside for genuine emergencies…
… spent three times over…
… just three months into the financial year.
That is from her Budget speech of just under a year ago and such rhetoric collides with what we looked at only last week on the 21st of this month.
Borrowing – the difference between total public sector spending and income – was £20.2 billion in September 2025; this was £1.6 billion (or 8.6%) more than in September 2024 and the highest September borrowing since 2020.
We borrowed nearly the same amount as her “Black Hole” in the latest monthly numbers for the public finances. The next problem is that the Chancellor raised taxes and claimed to have fixed the problem.
… means this budget raises taxes by £40bn.
Any Chancellor standing here today would have to face this reality.
And any responsible Chancellor would take action.
That is why today, I am restoring stability to our public finances…
Her claim of “stability” has been followed by ever increasing deficits accompanied by the consequences of her tax raid which is a weaker labour market with unemployment at 4.8% and higher inflation as companies raise prices in response to higher employment costs. There is another issue here as the higher inflation rate with the RPI at an annual rate of 4.5% has worsened the public finances via the cost of index-linked Gilts.
All of this means that the words of Lewis Carroll echo here.
“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”
The Office for Budget Responsibility
The next castle in the sky built by the Chancellor was her support for the OBR.
As a former economist at the Bank of England, I know what it means to respect our economic institutions.
Followed by this.
So I am pleased, that for the first time, the OBR have published not only five year growth forecasts…
… but a detailed assessment of the growth impacts of our policies over the next decade, too…
… and the new Charter for Budget Responsibility, which I am publishing today, confirms that this will become a permanent feature of our framework.
Then something that will be echoing in her ears right now.
And the OBR are clear: this Budget will permanently increase the supply capacity of the economy…
How is that going?
Let me hand you over to the BBC economics editor Faisal Islam.
The government is facing a bigger-than-expected hole in the public finances as it prepares for next month’s Budget.
A downgrade to the UK’s productivity performance from the government’s official forecaster could lead to the chancellor facing a £20bn gap in meeting her tax and spending rules, the BBC understands.
So the permanently increased supply capacity has met reality.
The OBR is understood to have downgraded forecast for productivity by 0.3 percentage points – a figure first reported by the Financial Times – bringing its assumption closer to that of the Bank of England.
It may sound a minor change but look what effect it gas according to Faisal.
The Institute for Fiscal Studies think-tank has calculated that for every 0.1 percentage point downgrade in the productivity forecast, government borrowing would increase by £7bn in 2029-30 – meaning a 0.3 point cut could add £21bn to the Budget hole.
The changes open up an initial gap of some £20bn, rather than the £10-£14bn widely anticipated.
At this point I suppose the Chancellor is hoping that everyone has forgotten that she was the one who promoted the role of the OBR.
The OBR is expected to explain the decision in detail, but some ministers have privately pointed out that if it had done this earlier, different choices could have been made at this summer’s Spending Review.
The first rule of OBR Club is that the OBR is always wrong
The whole concept of promoting the OBR by the Chancellor ignored the rule above and there is no excuse for this because it works nearly all the time. Some of the failures are quite spectacular but it is treated as like a Gold Standard by our political class and most of the media. Let me highlight this issue via their first ever post Budget forecast from November 2010.
trend productivity growth of 2 per cent a year, slightly below the productivity growth rate observed immediately prior to the recession but in line with previous UK trends;
Not only have they been completely wrong about this there is a deeper strategic issue as we see why they are ALWAYS going to be wrong. Their analysis was based on a past that no longer existed due to the credit crunch. Over the years I have frequently argued that some of the pre credit crunch growth was described by Alexander O.Neal.
You’re a fake, baby
You can’t conceal it
Know how I know?
‘Cause I can feel it
You’re a fake, baby
No rhyme or reason
‘Cause in your mind
It’s lying season.
Pre credit crunch what was recorded as activity was the era of liar loans accompanied by the banking boom and bust. It was another form of inflation that was recorded as growth and a signal of that over the years has been bank share prices. It has only been in the last 2 years we have seen a recovery in them or to look at things in a Japanese way they had a Lost Decade. I have written about such issues many times over the years but in the OBR’s world it does not exist and the crucial point is that it will never be so because they look backwards rather than forwards for their inspiration.
Indeed the mess is highlighted by something about which both the Chancellor and the BBC economics editor would approve of and we have already noted it.
bringing its assumption closer to that of the Bank of England.
Remember the Ben Bernanke Review because Bank of England forecasting was so poor?! The whole debate just ignores such issues and just for the avoidance of any confusion the Review was only a PR exercise as well as a boost to Ben’s pension.But the point is that even in the lofty Ivory Tower of the Bank of England it was considered necessary.
Immigration
The hits keep coming because as I looked at the November 2010 forecast I spotted this.
trend population growth of 0.7 per cent a year up to the end of 2013, based on an average net migration assumption of 140,000 per annum and the ONS’s latest projections of natural population change. Beyond 2014, trend population growth was assumed to slow to 0.5 per cent, as natural population change slows in response to reductions in the fertility rate during the 1990s and increases in longevity.
So they have been completely wrong about the other big feature of this era.
Comment
The fundamental issue here is strategic in that by applying Ivory Tower methods and looking backwards the OBR will keep being consistently wrong. On a tactical level this is not helped by it appointing people who are not very good at it either. Thus it is complete madness to adjust the UK public finances on the basis of an OBR paper change. Also with the present problems of the official Labour Force Survey used by the Office for National Statistics it is a particularly bad time to try to fly the economy via a derivative of it.
There is also an irony in the way that what is awful news if implemented ( as it will repeat the mistakes made in the October 2024 Budget). This is because some of the economic news has improved. Friday saw some growth in Retail Sales and it looks as though we are benefiting from others increasing their defence spending.
The UK Government has announced an agreement with the Republic of Türkiye for the purchase of 20
Typhoon aircraft, sustaining more than 20,000 highly skilled jobs across the UK supply chain. This deal, worth £5.4bn, is great news for the UK. ( BAe)
Maybe also on inflation via the British Retail Consortium.
Headline shop price inflation eased to 1.0% year-on-year, down from 1.4% in September. Month-on-month, prices fell by 0.3%. ( Harvir Dillon)
The FTSE 100 has hit another all-time high at 9674 this morning. But our hapless political class only talk to each other.
