Your guest columnist Daniel Susskind (“The OBR has been a victim of its own success”, Opinion, March 8) rightly calls for greater acknowledgment of the challenges faced by the Office for Budget Responsibility in making growth forecasts.
The last 15 years taught us that austerity holds back growth. This was quickly recognised by the IMF. In 2012, it cautioned governments that “negative short-term effects of fiscal cutbacks have been larger than expected because fiscal multipliers were underestimated”.
But forecasts by the OBR and others continued to underestimate impacts from deficient demand, while supply-side challenges were overstated to explain weak growth.
In recent days, the economic benefits of higher defence spending have been widely touted. This recognition should extend to other areas of public expenditure, such as investment in public services. Public spending not only affects growth by directly impacting demand — it also crowds in private investment. But the OBR had tended instead to emphasise crowding out. The OBR has gained a reputation for political independence. It should build public trust further by ensuring its modelling adopts all relevant evidence and is not biased towards a narrow economic view. That’s why we are calling for an independent review of modelling by public institutions, including multiplier effects on growth from public expenditure and investment.
This would give working people confidence that forecasts do not obstruct policies that promote growth and raise their living standards.
Geoff Tily
Chief economist, Trades Union Congress, London WC1, UK
