Cameron in hot water over OBR economy claim

David Cameron gave a speech about the economy yesterday. Photo: ITV News

Hot water. *The Prime Minister *appears to have landed in quite a lot of it after the independent budget watchdog, the Office for Budget Responsibility, proved its independence by slapping down comments made by Mr Cameron yesterday.

Robert Chote, who chairs the OBR, wrote to Number 10 today to highlight his concern. Here’s the key section:

The letter sent to Number 10 from the OBR chairman. Credit: OBR

That’s pretty clear: austerity (tax rises combined with government spending cuts) has reduced growth.

He goes on to explain that the OBR reckons austerity lopped about 1.4 percentage points off economic growth in 2011-2012.

This is an embarrassing rebuke to the Prime Minister and is the second time he’s been criticised for presenting a rosier view than is warranted.

Only last month the (also independent) Office for National Statistics obliquely criticised a Conservative Party political broadcast in which Mr Cameron said the Government was “paying down Britain’s debts.”

In fact, Britain’s debt is still growing.

The deficit – the amount of extra borrowing we add each year is slowing.

A schoolboy error, a slip of the tongue – or deliberate deception (depending on which side of the political fence you sit).

So what is the Government’s response today? Downing Street has put out an official statement:

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.

This misses the point entirely.

The OBR’s beef with the Prime Minister is that he claimed the OBR does not think austerity has hurt growth, when the OBR thinks it has.

Later in the letter Mr Chote does examine whether he has underestimated the damage to growth caused by austerity and whether that is why his forecasts have been consistently over-optimistic.

Office for Budget Responsibility (OBR) chairman Robert Chote. Credit: Lewis Whyld/PA Archive/Press Association Images

But this is an academic topic and he concludes that other ‘headwinds’ are to blame for knocking his forecasts (the “external inflation shocks, the Eurozone and financial sector difficulties” Number 10 refers to).

The chief objection to Mr Cameron’s claim remains: he was wrong to say that the OBR thinks austerity has not hurt growth.