HM Treasury and its independent financial analyst the Office for Budget Responsibility have told members of parliament that preparations for a potential emergency budget have been ongoing for the past month, in readiness for a new prime minister and chancellor taking office.
The confirmation came in response to a question from Treasury Select Committee chair Mel Stride, following concerns that the cost-of-living-crisis emergency budgets proposed by Liz Truss and Rishi Sunak for September would not be supported by an OBR forecast.
The OBR requires a minimum of 10 weeks notice of a fiscal event to provide an full independent forecast of the economy and the UK’s fiscal position. However, it has produced less-detailed reports at shorter notice in the 12 years since it was established as a non-departmental body funded by the Treasury.
Responses from current chancellor Nadhim Zahawi and OBR chair Richard Hughes stress that it will be for the next prime minister and chancellor to decide if and when an emergency budget takes place . But they confirm agreement was reached on preparatory work for a budget on either September 14 or 21 back in late July.
Zahawi wrote: “In light of the possibility that a forecast might be required, the Treasury agreed with the OBR that they should begin the preparatory work for a forecast from 29 July.
“The OBR have said that this would enable them to provide a forecast in September, should one be requested.”
A more detailed response from Hughes said that while the normal 10-week period allowed for a “multi-stage iterative forecast process to be undertaken”, forecasts could be produced more quickly in “exceptional circumstances”, as had happened six times before.
“As with any forecast, the initial stages of this process have involved OBR staff analysing the latest economic developments and how they compare to the assumptions and judgements that underpinned our most recent forecast in March,” he said.
“We have also commissioned HMRC and DWP to do the same with respect to individual tax and welfare spending lines. Neither of these processes has yet been completed.”
Hughes said that work would be the starting point for an initial “draft economy and fiscal forecast” that would be shared in confidence with the new chancellor.
He added that the initial round of work would require “at least one” subsequent round to refine key forecast judgments, incorporate the latest data – “including from highly volatile energy markets”, and reflect the economic and fiscal impact of any government policies before publication.
Treasury Committee chair Stride said the OBR’s forecasts provided parliament with transparency on the health of the nation’s finances to the public and international markets, which the UK relies on for borrowing.
He said the committee had repeatedly emphasised the importance of permanent tax changes and other significant financial measures being accompanied by an OBR forecast.
“It is therefore reassuring to hear that the OBR has already started this important work and stands ready to provide a forecast in time for an emergency fiscal event next month,” Stride said.
“Given the very significantly increased economic challenges since the OBR’s last forecast in March and the likely significant measures to be brought forward in September by whoever becomes our next prime minister, it will be vital that the OBR is requested by whoever is chancellor in the new government to publish as full a forecast as possible at that time.”