UK Budget Watchdog Says Treasury May Have Broken Law

(Bloomberg) — The UK’s fiscal watchdog has accused Treasury civil servants of breaking the law by withholding information before the March budget, raising the stakes in a blame game over who was responsible for hiding a multi-billion pound shortfall. 
Office for Budget Responsibility Chairman Richard Hughes told a Parliament committee on Tuesday that Treasury officials “were aware” of about £9.5 billion ($12 billion) of unfunded commitments that they didn’t disclose during the budget-drafting process. That was something that “under the law and under the act they should have done,” Hughes told the Treasury Select Committee, referring to 2011 legislation creating the OBR and subsequent measures. 
The accusation deepens the intrigue over the “fiscal black hole” that Labour Party officials say was left for them by the outgoing Conservative government after the general election in July. While Chancellor of the Exchequer Rachel Reeves has cited the surprise deficit to justify raising taxes by far more than outlined in the party’s campaign manifesto, she has so far directed the blame at her Tory predecessor, rather than the civil servants who now work for her. 
Treasury Committee Chair Meg Hillier said during the hearing on Tuesday that the possible legal breach was “certainly an area for us to probe further.” James Bowler, whose position as Treasury permanent secretary puts him in the eye of the storm, is slated to appear before the same committee on Wednesday alongside Reeves.
Hughes told members of Parliament that relations between the OBR and the Treasury had always been good, but were based on trust. “That system very clearly broke down,” he said. “We’re moving from a system of trust to a system of ‘Trust, but verify.’ We want to make sure the failure of oversight that happened back in March doesn’t happen again.”
Reeves claimed to have found what she said was a £22 billion fiscal hole after taking office on July 5. The surprise deficit became her principal reason for raising taxes by some £40 billion in her own budget last week, the biggest single tax-raising event since 1993.
Reeves acknowledged on Sunday that she had been “wrong” to promise not to raise taxes during the election. “I didn’t know everything,” she told Sky News. “When I arrived at the Treasury just under a month after I said those words, I was taken into a room by senior officials at the Treasury and they set out the huge black hole in the public finances beyond what anybody knew about at the time of the election.”
Although an OBR analysis published alongside last week’s budget rejected the £22 billion number, it found that around £9.5 billion had been known and left undisclosed in the budget presented by then-Chancellor Jeremy Hunt in March. Treasury officials have an obligation “to provide the OBR with the information it needs to forecast properly, and by their own admission the Treasury did not provide the OBR with all information available to them,” the budget watchdog’s analysis said.
Hunt has repeatedly rejected the claim that he hid any spending gaps. When Reeves announced the £22 billion hole on July 29, Hunt responded in Parliament that she had had “privileged access” to Bowler since January and that all spending estimates “are signed off by the most senior civil servants — the accounting officers — in every department.”
“If she is right, will she ask the cabinet secretary to investigate those civil servants for laying misleading estimates?” Hunt asked. Speaking in Parliament last week, then-Conservative leader Rishi Sunak denounced the £22 billion fiscal hole as a “false justification” by Reeves to support her agenda. 
The Budget Responsibility and National Audit Act 2011 states that the OBR “has a right of access (at any reasonable time) to all government information which it may reasonably require for the purpose of the performance of its duty” and “is entitled to require from any person holding or accountable for any government information any assistance or explanation which the Office reasonably thinks necessary for that purpose.”
Hughes, who previously worked in the Treasury, told MPs on Tuesday that he believed every British public servant “does their utmost” to obey the law. “There was a systemic failure in putting together the last forecast,” Hughes said. “And potentially a misunderstanding of expectation on both sides on what needed to be provided.”
(Updates with Jeremy Hunt comments in 10th paragraph.)
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