The eight warnings from the OBR's gloomy economic prognosis everyone missed

From 200,000 public sector ghost jobs to years of pay pain, the OBR's forecasts extend far beyond scary headlines on growth and the deficit

The budget watchdog captured headlines this week with a dire set of figures that showed record peacetime borrowing and disastrous economic forecasts. But a deeper look into the Office for Budget Responsibility's 217-page prognosis has uncovered a treasure trove of facts, predictions and warnings.

From ghost jobs to stealth tax giveaways, the OBR's Economic and Fiscal Outlook provided a sober assessment of the challenges facing the economy and public finances on Wednesday.

Here are the eight nuggets from the Government's official forecaster that everyone missed:

The 200,000 ghost jobs in the public sector

Buried deep in the weeds of the OBR’s supplementary tables are a missing 200,000 public sector jobs.

In March, before the reality of the pandemic’s impact became apparent, more generous spending plans triggered a forecast from the watchdog of a record 6m on the government payroll in 2024. But public sector employment grew by less than it thought in March last year. Covid-19 spending aside, the Chancellor has reined in his largesse, with departmental spending on average £10bn a year lower throughout the forecast according to the Institute for Fiscal Studies.

That hits home most acutely in 2022/23, when the OBR’s estimates of government employment are down 300,000 compared to March. By 2024, it remains 200,000 short at just 5.8m on the public payroll. There could be more bad news to come from this quarter as the Chancellor tightens the belt further in the years ahead.

Pay pain to continue after pandemic

After a decade of largely stagnant wages, workers will now face a pandemic pay pinch over the coming years, according to the OBR.

Average earnings in 2024 will be 6pc lower than the watchdog predicted in its March forecasts before the true economic blow dealt by Covid was clear, prolonging the UK’s pay pain.

The toll Covid will take on productivity and inflation will drag down wage growth, the OBR warned. Its economists said the shortfall between workers looking for jobs and actual work available, plus companies repairing their battered balance sheets, would add to the pressure on incomes.

Bank of England on verge of becoming biggest government debt holder

The Bank of England looks set to become the biggest holder of UK government debt for the first time after hoovering up bonds through its quantitative easing programme.

Ramping up the experimental policy this year has caused the Bank’s gilt holdings to surge to 33pc of GDP, up from 23pc in late 2019 and only marginally below insurance firms and pension funds in first place at 34pc. The OBR’s look at the gilt market ends in the second quarter of 2020, meaning the Bank has most likely eclipsed the big buyers already.

Threadneedle Street’s ratesetters recently announced a £150bn boost to its bond-purchasing programme, fuelling more accusations of monetary financing, whereby the Bank prints money to fund government spending directly .

Pandemic pulls up the drawbridge

Migration has plunged during the pandemic, with dramatic falls in the number of people travelling for work, play or study.

Official figures revealed in the OBR documents show the number of long-term work visas issued at the height of the pandemic, from April to June, were down 85pc compared with the same period of the year before. The number of study visas dropped 99pc. 

Application centres reopened in the following quarter, but even in the three months to September work visas were down 29pc on the year with study approvals 41pc below 2019 levels.

“The pandemic discourages migration, so – as a net recipient of migrants – the UK is likely to see a temporary fall in net inward migration and a consequent reduction in the size of the population,” said the OBR. This trims the UK's potential economic output by 0.2pc compared to March's forecast.

Record levels of welfare spending to prop up incomes

Welfare spending to help working age Britons has hit a record high this year as job losses mount and households enjoy the £20 per week increase in Universal Credit payments.

Non-pensioner welfare costs have jumped to 5.7pc of GDP, the joint-highest on record and level with the financial crisis peak. Total welfare spending is up 8pc year-on-year in cash terms and will be £15bn higher in 2020-21 than predicted in March. 

The OBR said any relief from falling unemployment in the coming years would be offset by Britain's ageing population putting more upward pressure on welfare spending.

Businesses go bad

More than one-third of business loans guaranteed by the Government to help companies through lockdown will not be paid back, the OBR predicts.

By mid-November, more than £65bn had been dished out between the bounce back loan scheme (BBLS), the coronavirus business interruption loan scheme (CBILS) and the coronavirus large business interruption loan scheme (CLBILS).

This is expected to rise to £87bn by the time the schemes end. Of those, an estimated £31.8bn will not be repaid, requiring the Government to make good on its guarantees to banks. Most of these will come from the BBLS, accounting for £26.8bn of the cost to the Treasury over the two years.

Households ready to unleash lockdown savings

After many households hoarded money during lockdown, the watchdog believes Britons are primed to splurge their pandemic savings.

The savings ratio - the amount of disposable income saved by households - rocketed to record highs during lockdown as shoppers and drinkers had nowhere to spend their money and worried workers tightened their belts.

The OBR now expects consumers to run down their pandemic reserves more quickly, returning the savings ratio to normal levels by 2022. It predicts a "much stronger recovery" in spending after a sharper-than-expected bounceback following the first lockdown.

Stealth tax giveaways a 'far cry'  from typical Budget tweaks 

Despite there being no Budget since March, the Chancellor has managed to cut a remarkable number of taxes.

With an OBR report now filling in the details, the sum total of these can be found – adding up to £29bn of largesse. Chris Sanger at EY says the giveaways are "a far cry from the ‘fiscally neutral’ budgets of his predecessor".

"The size of the number is even more staggering given that all of this is without an Autumn Budget,” he adds.

These include the temporary VAT cut for the hospitality and tourism industries, the stamp duty holiday on standard property transactions below £500,000, and the business rates holiday.