Watchdog chief slams Cameron claims

Mar 8 2013

The head of the independent fiscal watchdog has rebuked David Cameron for misrepresenting its position on the impact of austerity measures.

Office for Budget Responsibility (OBR) chairman Robert Chote wrote to the Prime Minister to dispute claims made in a high-profile speech on Thursday.

Mr Cameron said the OBR was "absolutely clear that the deficit reduction plan is not responsible" for depressed growth - "in fact, quite the opposite". But Mr Chote insisted that it in fact believed there was a short-term effect and that "fiscal consolidation measures have reduced economic growth over the past couple of years".

The strong retort from the watchdog came in response to a passage from the Prime Minister's speech which he used to insist there was "no alternative" to the Government's strategy.

"There's not some choice between dealing with our debts and planning for growth," he said. "As the independent Office for Budget Responsibility has made clear growth has been depressed by the financial crisis, the problems in the eurozone and a 60% rise in oil prices between August 2010 and April 2011.

"They are absolutely clear that the deficit reduction plan is not responsible. In fact, quite the opposite."

But in the letter sent to Number 10 by Mr Chote, he says: "For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely-held assumption that tax increases and spending cuts reduce economic growth in the short term."

Using a system of multipliers to estimate the impact of particular types of measures suggested, according to the OBR's October 2012 report, that "consolidation measures put in place by the previous and current governments would have been sufficient to reduce GDP in 2011/12 by around 1.4%", Mr Chote said.

He added that an impact of "external inflation shocks, deteriorating export markets and financial sector and eurozone difficulties were more likely explanations" than incorrect multipliers for the reason growth was even weaker that initially forecast.

A Downing Street spokesman said: "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."