Published:

45 comments

screen-shot-2016-11-23-at-17-00-22

“They insisted that we began every series of Budget preparation meetings with a presentation of the analyses and forecasts prepared for me by the officials responsible for modelling the UK economy…This was then supposed to produce a perfect blueprint of the way in which policy should be loosened or tightened.  In my usual low-tech way, I thought this was nonsense, and based on a naive belief that history would repeat itself…I rather dutifully sat through these presentations and analyses without allowing them to affect my judgement.”

Those Treasury officials have been replaced by OBR economists, but the moral drawn by Ken Clarke from his time as Chancellor still holds.  Forecasting is bunk – whether undertaken by distinguished academics or by, ahem, political commentators.  The 2008 crash, the “Arab Spring”, Jeremy Corbyn becoming Labour’s leader: few predicted any of these events, and even fewer will have predicted all of them.  Robert Chote, the fantastically clever head of the OBR, has no more idea of what happen in the world next year than I do, and probably less than you.  He might almost as well model the OBR’s work on Franklin D.Roosevelt, who once decided to raise the price of gold by 21 per cent.  Asked why, he reportedly replied that three times seven is a lucky number.

But old habits die hard – especially when reinforced by convention, the shorthand of headlines, and (in some cases at least) wishful thinking.  Some of Clarke’s fellow Remainers are less dismissive of forecasts than he was, in the extract above from his entertaining autobiography, Kind of Blue.  “The £220 billion cost of Brexit,” they chorused earlier today, on working out the difference between the OBR’s March calculation of Government debt by the end of this Parliament, £1.725 trillion, and its calculation today, £1.945 trillion.  But this is to assume not only that today’s figure is correct, but that the figure it was based on last spring was right, too – and the second, subtracted from the first, reveals a truth so incontestible that it can be deployed without qualification.

My point is not that the OBR is over-estimating the costs to Britain of Brexit.  It may be under-estimating them.  We don’t know.  What we do know is that the OBR has made judgements about it “consistent with a range of possible outcomes that we can keep under review in future forecasts”.  In other words, it’s sorry – but it hasn’t a clue.  Some will blame Ministers for not giving the OBR enough information for it to make a clearer judgement.  But they were not in a position to do that without simultaneously alerting Messrs Barnier and Verhofstadt to them too, or at least run the risk of doing so.  And if the OBR is going to assess the effects of the unknown and unknowable, it might as well throw in those of, say, this autumn’s German elections and the coming Trump presidency.

For a man who will have known that these gloomster figures will overshadow his first major financial statement, Philip Hammond seemed almost cheerful earlier this afternoon, as Andrew Gimson writes on this site.  Perhaps it is because he feels he is at last in the job he was born to do.  Maybe he has waited so long for this moment that he couldn’t help revelling in it.  Or could it be that because, like Clarke, he takes the challenges that confront him more seriously than the forecasts?  We will turn shortly to how he started to tackle them today.

45 comments for: The Autumn Statement – and why forecasting a cost of Brexit is bunk

Leave a Reply

You must be logged in to post a comment.