The UK’s Office for Budget Responsibility (OBR) will change to a “trust but verify” approach to the Treasury spending forecasts after discovering incomplete information made available ahead of the budget statement in March. “A reaction to the lack of transparency over sizeable, unannounced spending pressures and reserve allocation during the previous Conservative government,” says OBR.

Transparency Issues Emerge

 Last week, the Treasury withheld information on significant budget pressures, including increased day-to-day spending and unusually high withdrawals from emergency reserves. According to OBR Chairman Richard Hughes, had Treasury information been disclosed accurately, it would have projected much greater spending needs for the financial year. As spoken before the House of Commons Treasury Committee, Hughes called for more stringent oversight to avoid such occurrences as happened with the mistakes in the March budget’s preparation.

“So we want to make sure that oversight failure we saw in March is prevented going forward,” Hughes said. Going forward, the OBR will look for a more granular examination from the Treasury with its spending projections to avoid repeating the mistakes made with this specific budget.(More)

Budget Changes Going Forward

In response to this failure, the new Labour finance minister, Rachel Reeves, claimed that the previous Conservative government’s budget had left a £22 billion ($29 billion) deficit, which has led to unbudgeted tax rises. However, the Conservatives argue that most of the deficit comes from Labour’s decisions regarding public sector pay changes or overspending, which is usually offset in a normal financial year.

Already, Reeves has revealed additional taxes are in the kitty to help fill this fiscal gap, and this is one indicator that the new government will find the process challenging in attempting to stabilize the fiscal environment post-election.

OBR Wants Stronger Disclosure Policies

The OBR indicated that almost £9.5 billion in hidden pressures on departmental budgets should have been declared as part of the normal budgeting process. According to current law, such data is supposed to be released to the OBR, leading Hughes to believe that there could have been a miscommunication at the Ministry of Finance over the legal requirements.

Hughes said that to address such matters, the OBR would start seeking a detailed breakdown of projected spending from the Treasury, which would enhance its clarity and avoid further misreporting in the future.

Treasury Defense and Way Forward. 

According to a Treasury spokesperson, all recommendations from the OBR about reviewing the budget for March 2024 have been accepted. However, Hughes urged lawmakers to take their questions directly to the Treasury officials. The Treasury had not consulted ministers for its review but did examine what the Treasury officials had done, raising administrative compliance questions.

With financial accuracy at the centre stage, the OBR’s approach is to eradicate future budgetary gaps and ensure fiscal accountability. This will require the government to regain public and parliamentary confidence in the Treasury’s handling of fiscal policy. In the future, budgetary processes must be more transparent and more accountable.