Chancellor’s borrowing guidelines ‘make no sense’, says ex-OBR boss

The former head of the Government’s economic watchdog has slammed Rachel Reeves’ fiscal rules, suggesting they would only make sense if the Chancellor weren’t borrowing so much.

Richard Hughes also warned that Britain was ‘increasingly vulnerable’ to future shocks compared with other major economies unless a bigger buffer was built into the public finances.

In her Budget Reeves unveiled a package of tax rises to fund higher welfare spending and doubled the amount of ‘headroom’ to £22 billion to ease concerns on financial markets.

But Hughes, who was forced to quit the Office for Budget Responsibility (OBR) in December after it accidentally leaked details of the Budget, told peers on the Economic Affairs Committee that Ministers were still ‘piling up debt’ years after the twin economic shocks of the pandemic and energy price surge.

‘Increasingly vulnerable’: The former head of the Government’s economic watchdog has slammed Rachel Reeves’ fiscal rules

Hughes said the UK remained on track to run an overall deficit – the gap between what the Government raises in taxes and spends on public services – nearing 5 per cent of gross domestic product (GDP), or annual output, this financial year.

And he attacked Reeves’ ‘rolling’ fiscal rules, which allow the Government to keeping postponing its target year for balancing the books, enabling even more borrowing in the meantime.’If you want debt to be lower, then target debt to be lower. Don’t target it to be falling in five years’ time,’ he told peers last week. ‘Rolling fiscal rules make sense if you are in equilibrium and you want to stay there.

Error: Richard Hughes was forced to quit the Office for Budget Responsibility

‘When you are in disequilibrium, what rolling fiscal rules allow you to do is never get there because you’ve always got a two- or three-year excuse why you’re not there at the moment.’

Fiscal rules should be ‘designed for a country that’s running a 5 per cent deficit and doesn’t want to stay there’, he added.

‘At the moment we’ve got a set of fiscal rules that have allowed us to stay there for five years – unlike other countries.’

The OBR forecasts that total debt as a proportion of GDP will keep rising until the end of this Parliament in 2029 when it peaks at 97 per cent – higher than during the pandemic.

It has warned the Chancellor against using smoke-and-mirrors accounting tricks and highlighted a number of ‘fiscal illusions’ that Reeves might exploit to make the public finances seem better than they really are.

Hughes said her rules, which she overhauled when Labour came to power in 2024 and include matching day-to-day spending with tax receipts, were ‘among the loosest’ since they were introduced to curb debt-fuelled spending and had ‘done little’ to build fiscal resilience.

He also took aim at the ‘very small’ headroom Reeves had built into her plans, suggesting the buffer should be more than double to over £50 billion to give the Treasury more space to draw up its tax and spend plans.

Reeves, who has yet to find a replacement for Hughes, came under fire for presiding over leaks regarding her Budget, knocking business confidence and investment. The OBR’s next report is due in March. It recently warned that the public finances are on an unsustainable trajectory, with the debt pile set to almost treble to 270 per cent of GDP by the mid-2070s as the population ages.

Hughes said there had been no Parliamentary debate about this looming crisis and lamented the Treasury’s ‘increasingly cursory response’ to its warnings, noting it used to run to 100 pages but was now just 19 under Reeves.

A Treasury spokesman said the ‘non-negotiable fiscal rules’ had helped keep interest rates low and prioritise investment ‘to support long-term growth’, adding: ‘We’re cutting borrowing more than any other G7 country with borrowing forecast to be the lowest in six years as a share of GDP.’