The Office for Brutal Realism
I can't remember a time when a single set of economic forecasts has inspired such interest, or such dread. Let alone forecasts that expire in eight days.
However, in a summer of firsts, Monday's publication of the first report from the new Office for Budget Responsibility will be one of the more important.
The document will contain baseline forecasts for economic growth, public borrowing and debt, based on the assumption of no change in government policies. It will therefore shape the terrain on which the government's Budget decisions on 22 June will be based. With those decisions, the OBR forecasts will change again.
Say, for example, that Chancellor Osborne decides he needs to eliminate the structural deficit by 2015-16. Under the new system that he has introduced, it's the OBR that's going to tell him how much he needs to cut spending or raise taxes to have a fair chance of reaching that goal. The OBR reckons the cost - the ministers get to decide how to pay it.
What can we expect? The honest answer is we don't know. But it's interesting to consider the complex trick that Sir Alan Budd - the chairman - and his colleagues have been asked to pull off.
With this one set of figures, both the government and the OBR need this new body to demonstrate its independence. That is more difficult than it sounds.
The running assumption, often repeated by the government, is that Alistair Darling and (especially) Gordon Brown forced the nice Treasury civil servants into making hugely overoptimistic forecasts. Now those same officials have been set free - and remember, it is basically the same officials writing these forecasts, though this time with guidance from Sir Alan's team - everyone seems to think the picture will be a lot worse.
If that happens, ministers will say this demonstrates the importance of taking politics out of official forecasts. But if you were being mischievous you could say it proves no such thing. After all, who gains most from a confirmation that the books were cooked under Labour than the new government? And who will benefit more than the current chancellor, if these new forecasts turn out to have been too gloomy after all? The OBR is supposed to be independent of all politicians, not just the politicians of the old regime.
So much for the politics. What about the economics?
There's been a lot of talk about next year's growth forecast being revised down. That may well happen. But that would be less of a seismic event than many seem to think.
The borrowing numbers are currently tied to a forecast of 3% growth in 2011, whereas the current average of independent forecasts is 2.2%.
Imagine the OBR decides that growth will be 2.25% in 2011. Other things equal, this would add around £7bn to the overall deficit for 2011-12. But as usual, other things aren't equal: the old forecasts for 2010-11 were also based on an expectation that the deficit this year would be £167bn. In the event, it was £156bn.
The OBR will have to decide how much of that good news was structural - and how much was a one-off (for example, higher revenues due to high earners bringing forward income to avoid the new 50p rate). No-one can know for sure, even inside the Treasury. But, for what it's worth, the experts I've spoken to reckon that at least half of that £11bn improvement is permanent.
That would mean it more or less cancelled out the impact of lower growth next year, leaving the headline borrowing numbers not much changed - and, crucially, the structural deficit somewhat lower.
If that is what happens, that would seem to back up what some Treasury officials have said privately all along (see my previous post Gotcha); that they had "Gordon-proofed" the borrowing numbers, by assuming that the higher 2009 forecast they were prodded into would make a smaller than usual contribution to cutting the deficit. Remember - the March 2009 estimate of the deficit for 2009-10 was £175bn.
However, that is only talking about 2010 and 2011. The growth forecast for 2012 onwards could also be revised down from 3.25% a year, meaning that the overall borrowing numbers are higher, even if the structural deficit is unchanged.
In theory, that needn't concern the chancellor since he's focused on the structural deficit. But he might conclude, given his concern about the financial markets' appetite for large deficits, that structural borrowing needed to come down quicker than before.
But there are two much more important numbers, which could make the OBR report a 'game-changer' after all. The first is the estimate for the UK's long-term potential growth rate - now 2.5%. The second is the estimate of the permanent loss of output due to the financial crisis - which the Darling Treasury reckoned to be 5.25%.
It's quite possible to be gloomier, on both counts. With an ageing population, and lower immigration, you might agree with the OECD that our potential growth is closer to 1.75% a year. You might also say the permanent loss to output was more like 7.5%.
As it happens, that was what economists at Barclays Wealth thought when they collaborated at with the IFS on its Green Budget earlier this year. On that basis, they forecast then that the structural deficit in 2015-16 would be £53bn higher than the forecast in the PBR - ie that the overall "hole" to fill wasn't around £70bn, but nearly £125bn.
As we've seen, the borrowing numbers have got better since then: but with these different assumptions, you'd still be looking at spending cuts or tax rises worth around £110bn to fill the hole, not the roughly £70bn that figured in the election.
That would be a radical change from the estimates that these same officials produced (albeit with some help from Mr Darling) just three months ago. I'd be surprised to see it on Monday. But it's quite plausible that Sir Alan will leave the permanent loss of output unchanged, yet revise down the estimate of trend growth to 2.25% a year.
Even allowing for the recent improvement in revenues, that could leave the forecast for structural borrowing in 2015-16 some £20-30bn higher than in the last Budget. That would be bad news, but - by recent standards - not quite a cataclysm.
Sir Alan Budd is a distinguished public servant: I am confident that he is, first and foremost, seeking the truth. But the prime minister has rather prejudged the OBR's conclusions by asserting, without offering a lot of evidence, that the public finances are much worse than we had thought.
If Sir Alan only wanted to demonstrate his independence on Monday, he would surely be tempted to stand up and say Alistair Darling's forecasts were spot on. I suspect that is not what is going to happen. But his conclusions may be less dire than many predict.