Economical with the truth? Independent financial watchdog the OBR slaps down David Cameron over claims that high taxes and cuts don't hurt growth

 

David Cameron was slapped down by his own independent fiscal watchdog yesterday, provoking a politically charged row over the economic impact of the Coalition’s austerity programme.

Robert Chote, the chairman of the Office for Budget Responsibility, wrote to Downing Street to protest that Mr Cameron had misrepresented its view on the reasons for the economy’s feeble performance in recent years.

The Treasury was rocked by the dramatic intervention, which follows several rebukes from the UK Statistics Authority for the Government’s handling and presentation of official figures on the economy and spending.

Last night Labour accused Mr Cameron of playing “fast and loose with the facts”.

Mr Chote’s letter came after a speech two days ago in which the Prime Minister blamed the economy’s anaemic state on factors such as high oil prices and the crisis in the Eurozone.

Mr Cameron denied that Coalition policies were to blame, naming the OBR as support his argument. He said the forecaster was “absolutely clear” that the spending cuts and tax rises pushed through since it came to power in May 2010 were not responsible for Britain slipping into its first double-dip recession since the 1970s.

Mr Cameron said: “They are absolutely clear that the deficit reduction plan is not responsible – in fact, quite the opposite.”

But Mr Chote, in unprecedentedly critical comments from the independent watchdog, objected that the OBR had always been very clear austerity measures would serve as a drag on growth.

“For the avoidance of doubt” he wrote “it is important to point out that every forecast published by the OBR since June 2010 has incorporated the widely held assumption that tax increases and spending cuts reduce economic growth in the short term”.

Mr Chote added: “We believe that fiscal consolidation measures have reduced economic growth over the past couple of years.”

Ed Balls, the shadow Chancellor, described the comments as an “embarrassing rebuke”.

He said: “David Cameron’s attempts to defend his failing economic policy are getting more and more desperate but as Prime Minister he has an obligation to be straight with people and not play fast and loose with the facts.”

A Downing Street spokesman responded: “The OBR has today again highlighted external inflation shocks, the eurozone and financial sector difficulties as the reasons why their forecasts have come in lower than expected. That is precisely the point the Prime Minister was underlining.”

Jonathan Portes, the director of the National Institute of Economic and Social Research, said the OBR was right to clarify its position. “I’m very pleased to see it” he said. “I’m sure it was not intentionally misleading [from Mr Cameron], but anyone who was not familiar with the debate would have got the wrong impression.”

Sir Alan Budd, the first OBR chairman, told BBC Radio 4's PM programme: “It could be regarded as something of a rebuke.

“I think he is correcting a statement the Prime Minister has made and the important thing is the Prime Minister is attributing a view to the OBR which it doesn't hold and I think when that happens it is absolutely right to write to the Prime Minister and point out he has made an error.”

The UK’s GDP today is around 6 per cent smaller than the OBR forecast at the time of George Osborne’s first Budget in June 2010, when the Chancellor chose to accelerate Labour’s deficit reduction programme.

Some economists have argued the OBR underestimated the negative impact of the cuts, particularly its cuts to infrastructure spending, which has been slashed by 40 per cent over the past two years. Senior economists from the International Monetary Fund argue that many forecasters – including itself – misjudged the size of these so-called “fiscal multipliers” three years ago.

In an internal analysis last year looking at why it got its forecasts so wrong, the OBR concluded that turmoil in the eurozone and an unexpected global spike in energy prices were more likely to be responsible for the forecast error than the possibility that it had miscalculated the size of the UK’s fiscal multipliers. But Mr Chote conceded yesterday it was “clearly possible” that the fiscal consolidation had exerted a greater drag on the economy than it first though, although he said the OBR was “not yet persuaded” on that front.

Mr Chote took up the reins at the OBR in October 2011 Before that he was the director of the respected think tank the Institute for Fiscal Studies. He began his career as an economics reporter on The Independent.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: IT Installation / Commissioning Engineer - North West

£22000 - £25000 per annum: Recruitment Genius: An IT Installation / Commission...

Recruitment Genius: Telesales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: You will maximise the effective...

Recruitment Genius: Senior .Net Programmer

£25000 - £35000 per annum: Recruitment Genius: This Bridgend based software de...

Recruitment Genius: Digital Printer

£21000 - £22000 per annum: Recruitment Genius: A specialist retail and brand c...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence