OBR Seeks External Research to Improve Economic Forecasting Models

The Office for Budget Responsibility is actively seeking external research to enhance its economic and fiscal forecasting capabilities, according to a recent announcement on social media. The independent fiscal watchdog has published specific areas where it wants academic and professional input to refine the models that inform government spending and tax decisions.

The Current Forecasting Framework

The OBR’s economic analysis relies on a macroeconomic model originally developed by HM Treasury in 1970, though it has been updated over the decades. This model serves as a simplified representation of economic activity drawn from Office for National Statistics National Accounts data.

At the same time, the forecasting process combines economic models with statistical techniques including VAR and ARIMA methods, alongside expert judgement to integrate large amounts of information consistently. For fiscal forecasting, the OBR employs multiple models primarily owned by HMRC for taxes and the Department for Work and Pensions for benefits to produce detailed public finances forecasts.

Where Help Is Needed

The research areas outlined by the OBR span two main categories. Economic forecasting and modelling work focuses on productivity trends, investment patterns, and migration impacts. Fiscal forecasting and modelling seeks insights into gilt yields, spending drivers, and tax base analysis.

These forecasts carry significant weight in policy decisions. The OBR provides assessments of how policies might affect GDP, inflation, employment, and distributional effects across different regions and demographic groups.

Growing Calls for Reform

Critics have highlighted repeated large forecasting errors in the OBR’s work, chiefly around productivity and supply-side estimates that directly influence Chancellor decisions on tax and spending plans. The Institute for New Economic Thinking Oxford has pointed to these systematic issues as evidence that the current methodology needs updating.

Independent analysis suggests the OBR’s approach to incorporating permanent supply-side effects from policies requires more sophisticated alternatives to current methods like two-sided trend estimates for productivity.

Think tank British Progress has proposed specific reforms including targeted university commissions costing £500,000 to £700,000 annually, and empirical research programmes requiring around £1 million per year. Their total proposed investment package reaches £2.9 million annually to tap into UK academic expertise even as maintaining the OBR’s independence.

Key Takeaways

• OBR wants external research on productivity, investment, migration, gilt yields, and tax bases
• Current forecasting uses models dating back to 1970s Treasury work, combined with modern statistical methods
• Critics cite repeated large forecasting errors as evidence that methodology needs updating

What This Means for Kent Residents

Better OBR forecasts could lead to more accurate regional economic projections affecting Kent’s GDP, employment levels, and public spending allocations from central government. Kent residents might see improved predictions about migration impacts on local labour markets and housing, plus more reliable fiscal analysis affecting council funding and major infrastructure projects like HS1 and the proposed Thames Crossing. Kent County Council and local businesses in the logistics and ports sectors could benefit from enhanced analysis of investment drivers that shape the county’s economic growth prospects.