The traditional image of Budget day features the chancellor of the exchequer holding up the iconic Red Box outside Number 11, containing a red book that outlines the measures to be announced in the Budget speech.

However, attention has shifted to a different publication – a detailed, chart-filled analysis of the Budget, assessing the cost of government policies, produced by a team within the Ministry of Justice building, a relatively unknown entity outside of its own circle.

Despite its relatively low profile, this department wields significant influence over economic policy.

A growing debate is underway about whether this small department, known as the Office for Budget Responsibility (OBR), has become too powerful, with some arguing that it is essentially driving government economic policy, largely manned by young intellectuals and civil servants.

Furthermore, some suggest that the OBR's chairman, Richard Hughes, a Harvard-educated former Treasury official, has become as influential as the actual chancellor.

Labour's Lou Haigh, a former cabinet minister, has described the OBR as an "unelected institution dictating the limits of government ambition", while the Trades Union Congress has accused the "unaccountable OBR" of stifling growth.

As the Budget approaches, questions arise about whether the OBR has become the dominant force in shaping Treasury policy, and if so, whether this is a consequence of Labour's own actions in altering the department's role.

In a conversation with Richard Hughes following the Spring Statement, I posed the question of whether the OBR's perceived omnipotence was justified.

His response was emphatic and tinged with a hint of frustration.

"Our powers are strictly defined by Parliament," he stated. "We are tasked with producing forecasts, scrutinizing policy costs, and assessing the chancellor's progress toward meeting fiscal rules – nothing more."

"The chancellor has the authority to choose policies, set rules, and modify them as needed," he added. "We merely provide analysis and forecasts to inform those decisions."

The OBR's official mandate is to monitor the government's spending plans and performance, releasing forecasts for the economy and public finances twice a year, which help determine whether the government is on track to meet its tax and spending targets.

Ironically, the current debate surrounding the OBR's influence comes at a time when the chancellor has granted the forecaster even greater independence and authority.

The chancellor, with the consent of the Treasury Select Committee, appoints the three members of the Budget Responsibility Committee, which leads the OBR.

When Labour took office in 2024, they introduced a new law granting the OBR additional powers, including the ability to initiate forecasts without government request, prompted by the Conservatives' mini-Budget in September 2022, which sparked market concerns.

At the time, I reported that Chancellor Kwasi Kwarteng had declined the OBR's offer to provide an official forecast, which could have either reassured markets or hindered the Truss administration's policy announcements. The new law ensures that such a situation cannot recur.

The law also enables the OBR to question government assumptions about departmental spending, a capability it previously lacked, and provides direct access to Treasury data to facilitate this process.

Empowering the OBR was a deliberate move by Rachel Reeves, the Chancellor.

Reeves believed that granting the forecaster greater independence would enhance credibility in UK tax and spending policy, likely with the memories of the Truss-Kwarteng mini-Budget in mind.

However, by September this year, reports of Treasury frustration with the OBR had begun to circulate.

When I asked Chancellor Reeves about an OBR statement from two months prior, which noted that "promises made are constantly not kept" on tax and spending, she responded that the OBR's role is to produce forecasts, not to comment on government policy.

My conversation with Richard Hughes left a clear impression: the OBR's true power is not as extensive as its critics suggest.

Even before Labour's law change, Paul Johnson, then-director of the Institute for Fiscal Studies, cautioned against creating a "more powerful fiscal technocracy", arguing that we should be "highly cautious" about this development.

"The OBR has brought discipline and transparency to fiscal policymaking, but it is possible to have too much of a good thing," he said. "Decisions on taxation, spending, and borrowing are inherently political, not just technical questions."

"These choices are inescapably political in nature," he emphasized.

In late October, just a month before the Budget, the OBR reportedly downgraded its productivity forecast by 0.3 percentage points, a key metric influencing long-term growth prospects and Budget decisions.

According to the Institute for Fiscal Studies, a 0.1 percentage point decrease in the productivity forecast would result in a £7 billion increase in government borrowing by 2029-30, meaning a 0.3 point cut could add £21 billion to the Budget deficit.

This has significant implications for any chancellor.

For instance, if this downgrade had occurred during Jeremy Hunt's tenure as chancellor, it would have been nearly impossible for the Conservatives to implement the pre-election National Insurance cuts he introduced in March 2024.

A more significant issue is how much credit the government should receive for "pro-growth measures", such as planning reform or improved post-Brexit trade terms with Europe, which could help bridge the Budget gap.

Some on the Labour left have identified the OBR as a key structural obstacle to a government with a large majority implementing its policies decisively, a view now shared by some on the Labour right.

Praful Nargund, director of the Good Growth Foundation, who ran against Jeremy Corbyn in the previous general election, stated: "The Office for Budget Responsibility was created to enforce austerity, but in its effort to restore credibility, it has driven us further into a cycle of spending cuts without end."

"A body designed to oversee cuts is now being asked to referee a growth strategy, which is not its intended purpose," he added.

However, Richard Hughes emphasized that the OBR is simply accounting for the numbers, and that the chancellor and Parliament hold £3 trillion worth of power to make decisions on revenue and spending.

In September 2008, amidst the global financial crisis, the Conservative Party published a pamphlet titled "Reconstruction", which would eventually give birth to the idea of the OBR.

The pamphlet was released as the British banking system teetered on the brink of collapse, with Bradford & Bingley being nationalized and Lehman Brothers having filed for bankruptcy just two weeks prior.

Although the pamphlet received little attention at the time, it reflected best practices in fiscal policy and laid the groundwork for the OBR's creation.

The OBR was first established by the coalition government in 2010 and was placed on a permanent statutory footing in March 2011.

Chancellor George Osborne predicted that appointing independent economists would create challenges for the coalition government.

A notable example of this was the fallout after Robert Chote, then chair of the OBR, published a chart showing spending levels at their lowest since the 1930s.

Austerity measures have drawn comparisons to George Orwell's critique of living conditions in northern England, with BBC colleague Norman Smith invoking the "road-to-Wigan-pier" analogy to describe the situation.

Former Prime Minister Liz Truss has suggested that a "deep state" contributed to the downfall of her short-lived government, citing the "economic establishment" as a force opposed to changing the status quo.

Truss has previously noted the close relationships between various economic institutions, stating that officials often move between the Treasury, the Bank of England, the OBR, and the private sector, creating a network of like-minded individuals.

During the Johnson-Sunak era, the OBR released data showing the tax burden reaching historic highs, a finding that the government may not have welcomed.

The Labour government strengthened the OBR, and the impressive backgrounds of the Budget Responsibility Committee members have earned the organization credibility.

The committee's members, including Richard Hughes, Tom Josephs, and Prof David Miles, bring extensive experience in fiscal policy and economics, having held senior positions at the Treasury, the Bank of England, and Morgan Stanley.

Sources indicate that changes are forthcoming in the dynamic between the OBR and the Treasury, which will alter their working relationship.

A key change is that the OBR will now only provide its "headroom" calculation once a year, coinciding with the Budget, reducing the frequency of speculation about tax increases.

This adjustment acknowledges that the current system has created a cycle of speculation about tax rises, which can have negative consequences.

While some argue that the OBR is not to blame for this situation, the International Monetary Fund recommends increasing the headroom as a way to break the cycle of speculation and mitigate its impact on consumer and business confidence.

The chancellor is expected to outline plans to increase the headroom figure in the upcoming Budget, a move that will be closely watched by markets.

The 2022 mini-Budget demonstrated the significant respect the markets have for the OBR's role, as highlighted by Bank of England governor Andrew Bailey during emergency meetings at Downing Street.

Even without the OBR, the government's Budget decisions would still be influenced by market reactions, as the UK relies on foreign investment to finance its debt.

The UK's debt is increasingly held by foreign entities, such as hedge funds, rather than domestic institutions like pension and insurance companies, making market sentiment a crucial factor.

Those seeking to reduce the OBR's influence will need to provide alternative means of establishing credibility, both in terms of economic data and political authority.

As other countries manage without similar institutions, a debate has emerged about the OBR's role, record, and future, going beyond the chancellor's policies and into the broader context of economic governance.

Top picture credit: Getty Images