Robert Chote, the chairman of the Office for Budget Responsibility.
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The OBR should be given the power to adjust tax rates

Just as an independent Bank of England has helped ensure monetary stability, so a more powerful OBR could ensure fiscal sustainability.

On Wednesday, George Osborne will present his first Budget delivered during a period of economic growth. Despite a deficit forecast to be £111bn and the highest national debt since England last won the World Cup, he is under pressure from both sides of the coalition to reduce taxes, whether on low earners via the personal allowance or middle earners by cutting the higher rate threshold. It is entirely reasonable that politicians are seeking to take advantage of growth forecasts ahead of what will be a closely-fought election. But the last thing the Chancellor can or will do is put further pressure on the public finances via major tax reductions. He will announce improved borrowing projections but he will emphasise that the deficit and debt are the defining challenges, and that they are proving harder to overcome than he expected.

Ahead of the 2015 election, both major parties are jockeying to be seen as the safest pair of hands on the public finances. Both Osborne and Ed Balls have acknowledged the depth of the UK's problems and committed to tough deficit reduction targets. Osborne has pledged to achieve an absolute budget surpus by the end of the next parliament and will introduce a new Charter of Budget Responsibility in this year's Autumn Statement (to  "fix the roof when the sun is shining"), while Balls has promised to run a current budget surplus (leaving room to borrow for investment). 

Short-sighted handling of the public finances has contributed enormously to the economic mess that the UK finds itself in. For the past 20 years, Britain has seen debt steadily climb as successive governments have spent heavily in recessions but failed to save enough in booms. On average, the response to recessions has been 70 per cent greater than the surplus generated in good times. That has lead to a "debt ratchet" that causes debt to rise over each business cycle. Today, the national debt is about £124bn higher than it would have been if the ratchet did not exist.

One reason for the its existence is a persistent overconfidence among politicians and officials. Twenty one of the 25 official forecasts since 2002 have projected that the current budget will return to surplus within five years. When he entered office in 2010, Osborne even adopted that yardstick as one of his two fiscal targets. Yet the budget has not once been in surplus in the past 12 years. 

In 2002, Gordon Brown introduced a set of fiscal rules that the IMF rated as some of the best in the world. The Treasury monitored compliance and the National Audit Office looked over its shoulder. In 2010, Osborne introduced his own, tougher, rules and he looks set to introduce a new rule as part of his Charter of Budget Responsibility. These measures have been the equal of anything seen around the world but all have been broken within a decade and all have been insufficient to avoid the debt ratchet persisting.

One solution that has been exceptionally effective is this government's creation of the Office of Budget Responsibility (OBR), which has dealt with the UK's forecasting problems. Set up in 2010 to resolve persistent errors, the OBR has gradually built its credibility through impartiality and transparency. It has forced the Chancellor to adjust his Budgets on a number of occasions when the numbers did not measure up. So successful has it been that Balls wrote to its chairman Robert Chote to ask him to assess the opposition's manifesto pledges. The Chief Secretary to the Treasury Danny Alexander has since lent his support to the idea.

The expansion in the OBR's responsibilities is a worthwhile first step but it is capable of much more. In future, the OBR could take on responsibility for defining fiscal sustainability and, eventually, the power to adjust tax rates to ensure it. The government recognised that forecasting problems could be largely fixed by passing the responsibility to an independent body. The same may well be true of fiscal sustainability more generally.

The Bank of England is a powerful illustration of how beneficial it can be to delegate operational decisions to an independent, expert body. The Bank's independence ensured that the nation avoided a damaging tightening of monetary policy in the midst of the recession. The same cannot be said of fiscal policy where the latest estimates suggest that consolidation has cost the UK around 3 per cent of GDP so far. That cost might have been avoided if debt and the deficit smaller had been lower when the crisis began.

Successful fiscal councils overseas demonstrate the need to balance responsibility with credibility. The Dutch CPB is an established part of the political landscape and plays an instrumental role in setting budgets and evaluating manifesto pledges. In the US, the Congressional Budget Office assesses alternative policy options for the government. The credibility of these institutions has been built over decades and it would be a mistake to give the OBR too much responsibility too fast. Nonetheless, evaluating manifestos should be the beginning of the OBR's expanding set of responsibilities, not the end.

James Zuccollo is senior economist at Reform

James Zuccollo is senior economist at Reform

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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