Should the Office for Budget Responsibility also forecast inequality?

a post by Adam Corlett for the Resolution Foundation blog

The strengths and weaknesses of economic forecasting are under scrutiny, perhaps like never before. How might GDP perform under different Brexit policies compared to a world with no Brexit? Is unemployment now likely to rise or fall? What will public borrowing in 2022 be? Whatever your politics, such modelling and forecasting is indispensable – so long as its limitations are appreciated. But whose job is it to forecast inequality?

We have just released our own projections for household disposable incomes. These are not based on new modelling of economic fundamentals but, rather, combine the latest official forecasts from the Office for Budget Responsibility (OBR) with the default tax and benefit system that will exist unless policy changes. Crucially, this allows us to explore not just aggregate figures like average income but how different groups might fare and the outlook for income inequality. It is a projection not just for growth but for the distribution of growth.

For example, while in our projection average household incomes (after housing costs) rise by a fairly weak 3 per cent between 2016-17 and 2020-21 after accounting for inflation, this hides an increase of 4 per cent for the richest third of the population and growth of zero for the poorest third. As shown below, we therefore project an increase in inequality after 2016-17 – maybe even to record highs on some measures.

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