Report

How can the OBR improve the way it judges the supply-side effects of policy?

This report from UK think tank the Institute for Government sets out how the OBR has done this in the past, how its approach has evolved in recent years, and how it could be strengthened further.

The government has made economic growth one of its five missions. But this will not be realised quickly: easing planning restrictions will not mean building sites spring up overnight; improving education should lead to more productive or skilled workers entering the labour force, but again not immediately. Infrastructure projects are notoriously long running.

Fortunately, the government’s fiscal rules are also (and seem likely to remain) forward looking. That means the chancellor needs to show she is on course to have some measure of debt falling and for tax revenues to cover day-to-day spending in a few years’ time, rather than immediately. Policies that boost the economy’s productive potential in the medium term can make those fiscal rules easier to meet, even if they do not have any immediate impact on growth. As a result, it will be important how the Office for Budget Responsibility (OBR) scores the effect of new policy announcements on future economic growth.

This paper sets out how the OBR has done this in the past, how its approach has evolved in recent years, and how it could be strengthened further.