A ticking-off for the PM

Robert Chote's letter to the prime minister is an embarrassment for David Cameron - and marks yet another way in which his big set-piece speech on the economy has failed to work out as Downing Street hoped.

Call me crazy, but I can't help thinking this very public show of independence by the Office for Budget Responsibility, 10 days before the Budget, could end up being more helpful for the government than it seems today.

After all, in the most important arguments with Labour - over the role of austerity in thwarting recovery, and the scope to boost growth in the short term with higher borrowing - the OBR is still on the coalition's side. Now, when Mr Osborne cites that support he will have that much more credibility.

Still, that was clearly not Robert Chote's motivation in "clarifying" the OBR's position. Far from it. And I'm sure it does not feel like good news for David Cameron this morning.

'No alternative to Plan A'

Before he even gave Thursday's big economy speech, there was the distraction of that New Statesman essay by Vince Cable, the business secretary, which came close to endorsing a plan to invest and borrow more to support the economy (see my previous blog), just as David Cameron was preparing to insist that there was no alternative to Plan A.

Now, you have the chairman of the Office for Budget Responsibility giving him what can only be described as a ticking-off, for suggesting that the OBR didn't think spending cuts and tax rises had had any effect on the pace of the recovery - "quite the opposite".

I suspect it was that throwaway line, implying that the OBR thought austerity had actually helped growth, that set Mr Chote off.

In fact, as he explains in his letter, the OBR forecasts have always built in a negative impact on growth from the austerity measures. So have all the other UK forecasts out there, from City economists and the likes of the International Monetary Fund.

PM over-reached?

Last summer the IMF said that austerity measures from 2010 onwards - including those put in train by Labour - had slowed growth by a total of 2.5% of GDP over those two years. The OBR thinks the loss of growth was more like 1.4%.

Either way, you can see why the OBR chairman thought the prime minister had over-reached.

But, as I pointed out on Today this morning, Mr Cameron's critics shouldn't over-reach either, in their response to the letter. This isn't Robert Chote lining up on the side of Ed Balls.

Remember those estimated effects on growth were the ones built into the forecast from day one. As we know, the actual performance of the economy has not come close to those initial forecasts. In fact the OBR now thinks the economy will be about seven percentage points smaller in 2013-14 than it hoped it would be, in the summer of 2010.

No-one knows for sure, but in his letter, Mr Chote makes clear that the OBR thinks the Eurozone and high energy prices have probably played the major role in growth turning out to be so feeble, not the planned austerity measures. In that sense he's still lining up on the government's side.

Shadow chancellor Ed Balls acknowledges this difference of view between him and the OBR in his own statement about the letter. But, as he also points out, this is the second time this year that David Cameron has been publicly taken to task for what he has said about the budget.

No permanent damage

In January, the head of the independent UK Statistics Authority was moved to write publicly about a television broadcast the prime minister had made, suggesting the government was "paying down debt", when of course the truth is that debt is going up.

I doubt that either of these ticking offs will do major permanent damage. Mixing up the difference between the country's total accumulated debts and one year's additional borrowing (the deficit) is something politicians - and, yes, even senior BBC broadcasters - do depressingly often.

Taken together, you can see why people are saying that it makes the prime minister look defensive, at a time when there is so much speculation about the Budget and muttering about a change of course. Especially when that muttering is not just coming from the usual suspects but from people inside the prime minister's own party and the IMF.

But, as I said at the start, at least a small part of me can't help thinking Mr Osborne will be a little bit grateful, when he stands up on Budget day, that Robert Chote has reminded everyone how independent he is, even if Downing Street does not feel that way today.

This letter is embarrassing. I gather the OBR's updated forecasts are causing some bother for the Treasury as well, in the run-up to the Budget. But in the big public arguments with Labour about austerity, growth, and the underlying potential of the UK economy, Robert Chote continues to offer the Chancellor invaluable support.

Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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