FT story raises more questions about “independent” OBR

Office for Budget Responsibility made late changes that helped Osborne and co score political points

This week's New Statesman leader -- "This government must strive to make its cuts accountable" -- expresses concerns over the independence of the newly created Office for Budget Responsibility (OBR). In it, we suggest that the OBR's decision to "rush out" a positive statement on job losses, a day after leaked Treasury data pointed to 1.3 million job losses across the private and public sectors, was worrying at best.

Now we learn, thanks to the Financial Times front-page lead this morning, that the OBR made "last-minute changes to its Budget forecasts that had the effect of reducing the impact of the emergency Budget on public-sector job losses".

According to the paper, the government has acknowledged this late change, which allowed George Osborne and David Cameron to claim that the coalition Budget would result in fewer job losses than an equivalent, albeit hypothetical, Labour Budget.

Blogging on the story, the FT's Alex Barker writes:

The reasons for the revisions are even more surprising than the end result. Without telling anyone about the changes, the OBR assumed that George Osborne would:

1) Cut state contributions for public-sector pensions (an assumption that pre-empts the conclusions of John Hutton's pension commission)

2) Put the brakes on promotions in the public sector (even though the Chancellor has never announced such a policy)

There are three possible explanations: the independent OBR is taking orders from the Chancellor; practising economic telepathy; or inserting random policy into its forecasts.

One solution to this apparent lack of autonomy and threat of political interference, we suggest in our leader, "is to have the Treasury select committee appoint the OBR's chair, which would make the body accountable to parliament, rather than the executive".

Either way, the OBR is fast losing credibility. Peter Hoskin notes over on the Spectator's Coffee House blog:

Forget the hubbub about Gove's schools list, the most damaging story for the government this week could well be on the cover of today's FT.

UPDATE: A PoliticsHome poll has found that just 16 per cent of voters believe that the OBR is genuinely independent: 69 per cent subscribe to the view that "in practice it is part of the government".

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Jon Bernstein, former deputy editor of New Statesman, is a digital strategist and editor. He tweets @Jon_Bernstein. 

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump