OBR’s Richard Hughes: “With shock like Covid, you get information wherever you are” | Office of Budget Responsibility
Richard Hughes has one of the best views in London. From his open plan office on the 14th floor of the Department of Justice building, he can see Buckingham Palace on one side and Parliament on the other.
In addition to compiling the government’s economic and fiscal forecasts, Hughes has become somewhat of an amateur meteorologist. “You can look out the window and say, ‘It’s going to rain in 15 minutes.'”
A pandemic has meant Hughes’ day job has been far trickier than predicting the next shower in central London. As chairman of the Office for Budget Responsibility, Hughes and his team of 45 had to dive into new disciplines to understand what’s going on in the economy.
âWe spend a lot of time talking to public health experts, epidemiologists, [Englandâs chief medical officer] Chris Whitty and Sage Advisors. We start by saying: what is the outlook for the virus? How effective are vaccines? What are the prospects of having to reimpose the Covid restrictions? Because it all dictates the short-term economic outlook. “
The point is highlighted by a glance around the OBR office, where there are only three other staff at their desks. Everyone, thanks to the Omicron variant, works from home.
Hughes is 46 and attended school in Pittsburgh after his parents, both doctors, moved to an office in the United States. “In the post-war years steel was in decline where I grew up, so it really was a city
Education He attended Shady Side Academy in Pittsburgh, Pennsylvania, a private school that paved the way for him to study political science and government at Harvard before pursuing a master’s degree in development economics and international development at the University of ‘Oxford.
To pay He receives Â£ 150,000 a year as chairman of the OBR and says the megabuck salaries offered by the city have never had much appeal: âFor me the questions facing policymakers are more interesting than those in the private sector.
Last holidays Venice
The best advice he ever received âHope for the best but plan for the worst. “
Biggest career mistake Nothing major occurs to me, he says. âFortunately, I made it this far without overdoing it. “
Word he abuses âI have used ‘unprecedented’ an unprecedented number of times. “
How he relaxes Read and watch cricket.
where you watched him struggle with the trials and tribulations of the post-industrial era.
He joined the Treasury in 2000, when Gordon Brown was in his chancellor, then after a brief stint as an adviser to the French Ministry of Finance in 2007, spent eight years at the International Monetary Fund, in the grip of the global financial crisis when he arrived in 2008. Hughes worked on programs for Iceland, Greece, Ireland, Portugal, Libya and South Sudan, but recalls that the most delicate technical challenge was Zimbabwe during his period of hyperinflation.
âHyperinflation makes it almost impossible to use all of your analytical tools. When we got there in 2009 our biggest problem was trying to figure out what the GDP was in any kind of hard currency, as the exchange rate between the Zimbabwean dollar and the US dollar was somewhere around share in the quadrillions.
The IMF team ended up building their own version of the âBig Mac Index,â a way to compare the cost of buying an internationally uniform product in any local currency. âWe knew the civil servants were getting Z $ 100 billion as a monthly salary and we asked them what you could buy with that and they said basically you just had to buy lunch that day … Z $ 100 billion was worth about US $ 2.50 â.
There were, he said, parallels to the pandemic. âWhen you are hit with a huge shock, you collect information wherever you can get it. “
The OBR was created by George Osborne when he became Chancellor following the 2010 election. Designed to keep the government’s economic forecasting honesty, it was consistently overly optimistic about the UK economy during its years. early years, but these errors were nothing compared to his predictions before March 2020 Budget. Posted before the full implications of Covid were known, he assumed the economy would grow by around 1% last year. In the end, it contracted by almost 10%.
“We just had our biggest UK forecasting error in history in 2020,” said Hughes, who took over at OBR in October last year, after a second stint at the OBR. TrÃ©sor that began the day after the Brexit vote in 2016 and a year at the Resolution Foundation think tank. All forecasters make mistakes, he adds, but what matters is what they learn from experience. Noting that the UK seems to face a big shock every 10 years, he says: âThere was a lot of uncertainty in March and April 2020. We didn’t know if a vaccine was coming, we didn’t know how. the economy was going to cope with stresses and strains, we didn’t know how long the lockdown was going to last. “
The OBR, like forecasters, also underestimated how adaptable the economy would be to pandemic conditions, so each lockdown caused less economic damage than the last.
The tightening of Plan B restrictions was factored into the latest OBR forecast prepared for Rishi Sunak’s October budget. âWhat isn’t assumed in our prediction is a variant escaping the vaccine. We are all waiting to see what Omicron does to hospitalizations and deaths, and whether that requires more stringent public health restrictions than is assumed. in plan B. “
In addition to forecasting the economy’s short-term trajectory, the OBR examines some of the longer-term fiscal risks facing the UK, such as the potential cost of climate change and the interest bill on debt. of the Covid crisis. “The pandemic has helped take these things out of the realm of science fiction and shows that these risks are not the work of catastrophists and Cassandra, but that they are risks that can happen to a country like the UK. . “
More in hope than expectation, he adds: “It would be nice to have some semblance of normalcy to think a little more about the longer term issues.”