The Office For Budgetary Responsibility Essay

The Office for Budget Responsibility (OBR) is an advisory non-departmental public body that the UK government established to provide independent economic forecasts and independent analysis of the public finances as background to the preparation of the UK budget.[1] It was formally created in May 2010 following the general election (although it had previously been constituted in shadow form by the Conservative party opposition in December 2009)[2] and was placed on a statutory footing by the Budget Responsibility and National Audit Act 2011.[3] It is one of a growing number of official independent fiscal watchdogs around the world.[4]

Robert Chote, formerly a director at the Institute for Fiscal Studies[5] is the current head.


The UK government created the OBR in 2010 with the purported goal of offering independent and authoritative analysis of the UK's public finances. To that end it produces two 5-year-ahead forecasts for the economy and the public finances each year, alongside the Budget and Autumn Statements.[4]

In its role in providing independent analysis the OBR has four main duties:[4]

Forecasts of the economy and public finances[edit]

The OBR produces five-year forecasts for the economy and public finances twice a year. The forecasts accompany the Chancellor’sBudget Statement and his Autumn Statement and they incorporate the impact of any tax and spending measures announced by the Chancellor. Details of the forecasts are set out in the Economic and fiscal outlook (EFO) publications. [6] The annual Forecast evaluation report (FER) [7] published each autumn, examines how the EFO forecasts compare to subsequent outturns. The OBR has published briefing papers describing its approach to forecasting the economy [8] and public finances,[9] and the macroeconomic model it uses.[10]

Evaluation of the Government’s performance against its fiscal targets[edit]

The OBR uses its public finance forecasts to assess the Government’s performance against its fiscal targets. The Government has set itself two medium-term fiscal targets: first, a fiscal mandate to balance the cyclically-adjusted current budget five years ahead, and second, a supplementary target to have public sector net debt falling in 2015-16.[11] In the Economic and fiscal outlook, the OBR assesses whether the Government has a greater than 50 per cent probability of hitting these targets under current policy. Given the uncertainty inherent in all fiscal forecasts, the OBR also tests how robust this judgement is by using historical evidence, sensitivity analysis and alternative scenarios.

Scrutiny of the Government’s policy costings[edit]

The OBR conducts scrutiny and analysis of HM Treasury’s costing of tax and welfare spending measures. During the run-up to the Budget and the Autumn Statement, the OBR subjects the Government’s draft costings of tax and spending measures to detailed challenge and scrutiny. These are then stated in the EFO and the Treasury’s policy costing documents with the OBR stating whether it endorses the costings that the Government finally publishes as reasonable central estimates. The OBR has published a briefing paper describing its role in policy costings and how they fit into the forecast process.[12]

Assess the long-term sustainability of the public finances[edit]

The OBR also assesses the long-term sustainability of the public finances. Its annual Fiscal sustainability report [13] sets out long-term projections for different categories of spending, revenue and financial transactions and assesses whether they imply a sustainable path for public sector debt. The Fiscal sustainability report also analyses the health of the public sector’s balance sheet using both conventional National Accounts measures and the Whole of Government Accounts as prepared using commercial accounting principles.

Other functions[edit]

In addition to these core responsibilities, the Government has asked the OBR to forecast the Scottish receipts for the four taxes that it plans to devolve to the Scottish Government from 2015 onwards; the Scottish rate of income tax, stamp duty land tax, landfill tax and the aggregates levy.[14] The OBR has published these forecasts since March 2012 alongside UK revenue forecasts. From autumn 2014, the OBR will publish similar forecasts for Welsh taxes.[15]

In March 2014, the Charter for Budget Responsibility was modified to include a new cap on welfare expenditure alongside the Government’s fiscal mandate.[16] The welfare cap puts a limit on the amount that government can spend on certain social security benefits in the years 2015/16 to 2018/19. The OBR is charged with assessing the Government’s performance against the cap at each Autumn Statement. As part of this assessment, the OBR is required to produce a forecast for welfare spending in scope of the cap in its Economic and fiscal outlook. The welfare cap means that if spending exceeds a certain limit, then policy action must be taken, or the cap level must change, and Parliamentary approval must be obtained. The cap features a two per cent forecast margin above the level of the cap that allows for small fluctuations in the forecast without corrective action being required. The OBR is required to assess whether welfare spending above the cap is caused by movements in the forecast or by discretionary policy changes. The OBR has also been tasked with producing an annual report on trends in welfare spending.

The OBR undertakes a variety of research projects through the year. It publishes briefing material [17] to inform the public about its work, and provides a same-day briefing on the public finances statistics.[18] The Budget Responsibility Committee [4] members and OBR staff also give talks and presentations at external events. Robert Chote has discussed the role of the OBR, and the difference that it made after its first three years in existence, in a lecture entitled Britain’s fiscal watchdog: a view from the kennel on 9 May 2013.[19] Its activities are summarised each year in its Annual Reports. [20]


George Osborne, the Chancellor of the Exchequer of the Conservative-Liberal Democrat coalition formed after the 2010 general election, announced the body in his first official speech. He criticised the economic and fiscal forecasts of the previous Labour government, and announced that the OBR would be responsible for publishing these independently of government in future.[21] The objective underpinning its creation was to provide an independent assessment of national public finances before the coalition Government's emergency budget in June 2010, which outlined the size and pace of the fiscal consolidation plan inherited from the outgoing administration.[19] The role of the Office is to advise whether the declared policy of the Government is likely to meet its targets [22]

The OBR was initially chaired by Sir Alan Budd who, along with Geoffrey Dicks and Graham Parker, formed the Budget Responsibility Committee.[23] Budd had been a founding member of the MPC; Dicks was chief economist at Novus Capital and former chief economist of the Royal Bank of Scotland; and Parker headed up the Treasury’s public sector finances team. The remainder of the initial team comprised eight staff seconded from the Treasury.[22] The initial team provided recommendations to the Chancellor on the role of the permanent OBR.[11]

The OBR produced its first forecast for public finances shortly before the June 2010 budget with the second at the June budget incorporating the impact of newly announced measures. Colin Talbot, Chair of Public Policy and Management at Manchester Business School and Treasury adviser on public spending, questioned the credibility of the new organisation. He said that the body could not be set up in time to judge the forecasts in the June 2010 United Kingdom Budget. In his opinion, the OBR would not be sufficiently independent of politicians or the Executive to remove the politics from economic decision-making.[22] The office made adjustments to its forecasts in the week before the June 2010 budget. These were thought to be politically favourable to the coalition government and so cast doubt on its independence.[24]

In July 2010 it was announced that Budd would not continue in the role after his initial 3-month contract expired.[25][26] The Financial Times reported "His departure was expected and Sir Alan had let it be known privately that he had never intended to serve as chairman of the OBR for anything other than a short period. His contract spanned the emergency Budget, leaving enough time thereafter to advise on the legislation needed to establish the OBR on a permanent basis."[27] Speculation on his successor had included Rachel Lomax, John Gieve, Andrew Dilnot, Robert Chote, Michael Scholar and Ruth Lea.[28][29]

In September 2010, Chancellor George Osborne announced that Robert Chote had been appointed as the new Chairman of the Budget Responsibility Committee (BRC). The two other members of the BRC were Stephen Nickell, a former member of the Bank of England Monetary Policy Committee and Graham Parker, who formerly headed up the Treasury's public sector finances team.[4] An Oversight Board was also created comprising the three BRC members plus two external members acting as non-Executive Directors.


Budget Responsibility Committee[edit]

The three members of the Budget Responsibility Committee (BRC) who are appointed by the Chancellor of the Exchequer following an appointment hearing at the Treasury Select Committee, lead the OBR. They have executive responsibility for carrying out the core functions of the OBR, including responsibility for the judgements reached in its forecasts. They are: Robert Chote (Chairman), Professor Sir Charles Bean, Graham Parker CBE.[4]

Oversight Board[edit]

The OBR's Oversight Board ensures that effective arrangements are in place to provide assurance on risk management, governance and internal control. It consists of the three members of the BRC plus two non-executive members, Lord Burns and Sir Christopher Kelly.[4]

Advisory Panel[edit]

The OBR’s Advisory Panel of economic and fiscal experts meets regularly to advise the OBR on its work programme and analytical methods. Currently members come from the Bank of England, the Institute for Fiscal Studies, academia, and other bodies.[30]

Legislation and related material[edit]

The OBR’s formal rights and responsibilities are outlined in four documents:

• The Budget Responsibility and National Audit Act 2011[3]

• The Charter for Budget Responsibility [31]

• The OBR/HM Treasury Framework document [32]

• A Memorandum of Understanding between the OBR and government departments with which it interacts most frequently and closely: HM Treasury, HM Revenue and Customs and the Department for Work and Pensions. [33]

The Budget Responsibility and National Audit Act [3] sets out the overarching duty of the OBR to examine and report on the sustainability of the public finances. It also gives complete discretion to the OBR in the performance of its duties, as long as those duties are performed objectively, transparently and independently and takes into account the sitting government’s policies and not alternative policies. The Charter [31] outlines the OBR’s independence which includes complete discretion to decide:

• The methodology underpinning the OBR’s forecasts, assessment and analyses;

• The judgements made by the OBR in producing these outputs;

• The content of the OBR’s publications; and

• The OBR’s work programme of research and additional analysis.[19]

The Charter [31] also specifies material that the OBR have to include in its forecasts and gives the Chancellor the right to determine the length of the forecast horizon – subject to a minimum of five years. The Charter states that the Government remains responsible for policy decisions and costings and the OBR “should fnot provide normative commentary on the particular merits of Government policies”.[34] It also gives the OBR right of access to all Government information which it may reasonably require for the performance of its duties. Under the Memorandum of Understanding where it is not possible to reach agreement, issues may be escalated to the Chair of the OBR and the Permanent Secretaries as appropriate.[19] The Framework document sets out the OBR’s governance and management arrangements. As a non-departmental body under the aegis of the Treasury, the OBR is formally accountable to the Treasury Select Committee of the House of Commons. This accountability to parliament takes a number of elements:

First the four core publications the OBR is required to publish each year have to be laid formally before parliament;

Second, the Treasury Select Committee can call on the OBR to give evidence on its work at any time;

Third, the Treasury Select Committee has a role in determining the membership of the Budget Responsibility Committee. When a new member has to be appointed, the Chancellor of the Exchequer names his preferred candidate following a formal application and interview process run by the civil service. The Treasury Select Committee holds confirmation hearings with the candidate and can veto the Chancellor’s choice.[19]

International coordination[edit]

The OBR is a member of the EU Independent Fiscal Institutions Network set up by the EU in September 2015.

See also[edit]


  1. ^Osborne to give details of £6bn spending cuts next week, BBC, 17 May 2010 
  2. ^Conservatives launch Office for Budget Responsibility, BBC, 8 December 2009 
  3. ^ abcThe Budget Responsibility and National Audit Act 2011 (Commencement No.1) Order 2011 SI 2011/8(PDF) 
  4. ^ abcdefgWhat we do, OBR, retrieved 4 May 2014 
  5. ^"Robert Chote to head Office for Budget Responsibility". BBC News. 9 September 2010. 
  6. ^Economic and fiscal outlook - March 2014, OBR, retrieved 4 May 2014 
  7. ^Forecast evaluation report - October 2013, OBR, retrieved 4 May 2014 
  8. ^Briefing paper No. 3: Forecasting the Economy(PDF), OBR, October 2011 
  9. ^Briefing paper No. 1: Forecasting the public finances, OBR, January 2011 
  10. ^Briefing paper No. 5: The macroeconomic model(PDF), OBR, October 2013 
  11. ^ abBudget Forecast: June 2010(PDF), HM Treasury, June 2010, archived from the original(PDF) on 2012-10-15 
  12. ^Briefing Paper No. 6: Policy costings and our forecasts(PDF), OBR, March 2014 
  13. ^Fiscal sustainability report - July 2013, OBR, retrieved 4 May 2014 
  14. ^Scotland Act 2012(PDF), 2012 
  15. ^Wales Bill: Financial Empowerment and Accountability(PDF), March 2014 
  16. ^Charter of Budget Responsibility March 2014 update(PDF), HM Treasury, March 2014 
  17. ^Briefing Papers, OBR, retrieved 4 May 2014 
  18. ^Monthly public finance data, OBR, retrieved 4 May 2014 
  19. ^ abcdeChote (9 May 2013), Britain's fiscal watchdog: a view from the kennel(PDF) 
  20. ^Annual Report, OBR, retrieved 4 May 2014 
  21. ^"George Osborne promises spending cuts plan next week". BBC News. 2010-05-17. Retrieved 2010-05-17. 
  22. ^ abcMixed reaction to Office for Budget Responsibility, Public Finance, 17 May 2010 
  23. ^Speech by the Chancellor of the Exchequer, the Rt Hon George Osborne MP, on the OBR and spending announcements, HM Treasury, 17 May 2010 
  24. ^Chris Giles (July 8, 2010), "Late OBR changes shrank job loss figure", Financial Times 
  25. ^Sir Alan Budd to leave the Office for Budget Responsibility, Daily Telegraph, 6 July 2010
  26. ^Alan Budd quits as government spending watchdog, Guardian, 6 July 2010
  27. ^
  28. ^"How about Sir Michael Scholar for the OBR?". The Daily Telegraph. London. 7 July 2010. 
  29. ^Martin, Iain (6 July 2010). "Ruth Lea in at the OBR PDQ?". The Wall Street Journal. 
  30. ^OBR names expert advisory panel(PDF), OBR, 23 March 2011 
  31. ^ abcCharter of Budget Responsibility March 2014 update(PDF), HM Treasury, March 2014 
  32. ^Office for Budget Responsibility and HM Treasury Framework Document(PDF), OBR, April 2011 
  33. ^Memorandum of Understanding between Office for Budget Responsibility, HM Treasury, Department for Work and Pensions and HM Revenue & Customs(PDF), OBR, April 2011 
  34. ^Charter for Budget Responsibility March 2014 update, page 12, para 4.12(PDF), HM Treasury, March 2014 

External links[edit]






Mark Davies is concerned about harsher taxes on property ownership signalled by Finance Act 2018 No. 2.

Currently, the UK is a safe place to pay modest income tax, no capital gains tax and no inheritance tax on commercial property. However, Brexit fears are impacting on inward investment to the UK and as a consequence, recently the UK achieved very little tax on capital gains.

It looks unlikely that the Office for Budget Responsibility has considered how much PAYE revenue from local cafes, shop fitters and suppliers will be lost from reducing investment in commercial property.

Mark Davies would prefer to see foreign investment in new homes encouraged and incentivised through the tax system.

SDLT changes

In November’s Budget, the Government announced a number of changes to the current rules. The foremost of these concerns are the supplementary rate of SDLT to be paid by those acquiring a second home. These amendments include legislative changes that aim to prevent the ability of taxpayers to claw back additional rate SDLT suffered where a replacement main residence is subsequently acquired by reason of certain arrangements.

The original claw back will be prevented where a taxpayer only disposes of part of their only or main residence; or where it is sold to their spouse. This new claw back will only be available if the taxpayer disposes of the whole of the interests in their main residence to someone who is not their spouse.

Additional changes to the SDLT rules will dis-apply a charge to the additional rate where an individual buys a property from their spouse or partner. The interests of a former spouse or civil partner upon divorce (specifically when the property is held under certain ‘property adjustment orders’ in the case of divorce) will also be dis-regarded.

Finally, it is intended that new rules will disregard a property held by a child’s parents when a property in purchased by a child’s trustee pursuant to a power conferred on the trustee by a relevant court appointment.

In addition to this, on 22 November 2017, the Government introduced SDLT relief to first time buyers (who have never owned an interest in residential property anywhere in the world) who acquire properties for less than £500,000. Those paying £300,000 for their first residential property will no longer pay SDLT at the current rates, but will pay 5% on the purchase price exceeding £300,000.

First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.

Anti-avoidance rules applying to offshore trusts

Finance Bill 2018 No. 2 will identify two main anti-avoidance rules. The first affects the distributions or benefits made to the settlors or their close families. From April 2018, such payments will be taxed on a UK resident settlor. This can be a spouse, civil partner, cohabitee or minor child – even if that individual is taxed in their own right. However, it is possible for the settlor to recover the tax from the beneficiary.

The second new rule relates to trust distributions made to beneficiaries who do not pay tax on the distribution as they are either non-resident individuals or remittance basis users but who later make a gift (direct or indirect) to a UK resident individual on or after 6 April 2018. If the distribution is made with deliberate intention to directly or indirectly pass on either the whole or part of the original distribution, the UK resident individual receiving the distribution directly will be taxed accordingly.

In Mark’s view, the rules are unrealistic and difficult to enforce. The taxpayer may not necessarily know that gifts have been funded by trust distributions which create a tax liability. It is vital that offshore trustees should seek tax advice as soon as possible to determine what actions are necessary before the rules are enforced on 6 April 2018.

Taxation of Trusts

The Government will publish a consultation in 2018 on how it intends to make trusts simpler, fairer and more transparent. However, as the Government has taken three years to legislate on the impact of non-dom changes on trust tax rules, there is little certainty of what this consultation will cover.

Non-resident Companies – Extending the Scope of Corporation Tax

After consultations in early 2017, it has been confirmed that income received by non-resident companies in respect to interests in UK property will become chargeable to UK corporation tax, rather than income tax. HMRC are trying to consolidate how tax applies to property income for UK and non-UK residents alike.

Non-resident investors – UK Land Transactions

From April 2019, corporation tax or capital gains tax will be charged on gains made by non-residents on the disposal of UK land thus creating a single regime for disposals of any UK situated land.

Two further extensions of this will see the introduction of:

A concept of ‘indirect’ disposal now applies. This is where shares in a company or interest in a partnership, which holds UK land are disposed of and where 75% or more of the value of the entity is attributable to UK land (“property rich”). These rules will cover both commercial and residential interest in land.

The extension of the charge will apply to widely held companies and other investment vehicles. The new rules will only apply on gains arising and accruing on or after 1 April 2019 (for companies) or 6 April 2019 (for other persons). This means there will be rebasing to April 2019 for non-residents now caught by the new regime.

The rules will include a targeted anti-avoidance rule (“TAAR”) which will apply to all arrangements entered into after 22 November 2017, with the main purpose of securing gains that are not subject to the new rules, including those under the terms of a double taxation treaty.

Taxpayers who make a chargeable deposit – direct or indirect, will have 30 days to report the disposal to HMRC; (Corporation taxpayers are exempt as they must register for corporation tax and make returns in line with that regime).

Disguised Remuneration

The Government is looking to end arrangements involving Employee Benefit Trusts (“EBTs”) and similar schemes. This Budget announced the addition of a “close company gateway” into the legislation, aiming at preventing small companies setting up arrangements to benefit their shareholders and key employees.

The Government also announced the requirement for all outstanding agreements post 5 April 2019 to be notified to HMRC to ensure compliance. This final measure will allow the collection of tax charges from UK employees where the employer is located offshore.

Corporation Tax Avoidance

Corporation Tax has been reduced in order to attract foreign businesses to the UK, but the Government has been mindful to ensure that UK companies are taxed fairly when considered part of a multi-national group.

The Government has proposed that it will consult on changing the current ‘intangible fixed asset’ regime and also on creating measures to prevent UK traders or professionals from ‘fragmenting’ their income between non-resident entities to avoid paying tax.

In addition to this, the Substantial Shareholdings Exemption rules will be changed in order to avoid unintended creation of a corporation tax charge when the assets of a foreign branch are transferred to overseas subsidiaries in return for shares. The complexity of these rules are demonstrated by the need to have revisions to avoid ‘unintended consequences’.

Corporate tax and the digital economy

The Government has published a paper on its position on ‘Corporate tax and the digital economy’ describing the difficulty that it (and all governments have) recognising how profits should be taxed in today’s digital world.

This paper recommends immediate action from multinational companies who hold intellectual property eg. a brand name in no tax or low tax jurisdictions. The current strategy enables profits to be transferred to an entity which holds intangible assets and pays little or no tax. The paper recommends applying a UK withholding tax (basic income tax) to royalties paid in connection with products and services to UK customers. The tax will apply even if the supplier is not a UK resident to a non-UK intellectual property holding company. The paper does recognise that this is an interim solution to an international issue that can only be solved with multilateral cooperation.

Mark doubts that they will be successful collecting much tax as the withholding tax will be applied in accordance with the UK’s international double tax treaty obligations. The Government acknowledges that it will respect double tax treaties – so in order to avoid this, intellectual property holding vehicles could be migrated from a country where there is no double tax treaty to a country where there is a low withholding tax applied by the treaty. Inevitably, there are some significant practical obstacles to overcome and it may be difficult for the UK to enforce compliance as the UK does not have jurisdiction over non-residents.

Time limits for discovery of offshore non-compliance

Aligned with the Government’s hardening stance on the use of offshore jurisdictions to avoid paying UK tax, HMRC will consult (in Spring 2018) on extending the time limit in which they are able to assess underpaid tax from offshore arrangements.

It is proposed that if the taxpayer has an offshore connection that has led to the avoidance of UK tax, the time limit within which HMRC can recover underpaid tax will extend to 12 years.

HMRC justifies this proposal by stating that it often takes longer to establish the facts in offshore cases. Currently, HMRC is only able to raise an assessment for underpaid tax up to 4 years from the end of the tax year in question in most cases.

The exceptions to the rule are where an underpayment can be demonstrated to arise from careless or deliberate behaviour – in which case the limit it is increased to 6 and 20 years, respectively.








Category: Articles and Publications, MDA in the News, Tax Updates, UncategorisedBy Mark Davies & Associates

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