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

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How will Theresa May meet her commitment to low-earners?

The Prime Minister will soon need to translate generalities into specifics. 

The curtailed Conservative leadership contest (which would not have finished yet) meant that Theresa May had little chance to define her agenda. But of the statements she has made since becoming prime minister, the most notable remains her commitment to lead a government "driven not by the interests of the privileged few, but by yours." 

When parliament returns on 5 September, and the autumn political season begins, May will need to translate this generality into specifics. The defining opportunity to do so will be the Autumn Statement. Originally intended by George Osborne to be a banal update of economic forecasts, this set-piece more often resembled a second Budget. Following the momentous Brexit vote, it certainly will under Philip Hammond. 

The first priority will be to demonstrate how the government will counter the threat of recession. Osborne's target of a budget surplus by 2020 has wisely been abandoned, granting the new Chancellor the freedom to invest more in infrastructure (though insiders make it clear not to expect a Keynesian splurge).

As well as stimulating growth, Hammond will need to reflect May's commitment to those "just managing" rather than the "privileged few". In her speech upon becoming prime minister, she vowed that "when it comes to taxes, we’ll prioritise not the wealthy, but you". A natural means of doing so would be to reduce VAT, which was increased to a record high of 20 per cent in 2010 and hits low-earners hardest. Others will look for the freeze on benefit increases to be lifted (with inflation forecast to rise to 3 per cent next year). May's team are keenly aware of the regressive effect of loose monetary policy (low interest rates and quantitative easing), which benefits wealthy asset-owners, and vow that those who lose out will be "compensated" elsewhere. 

A notable intervention has come from Andrew Tyrie, the Conservative chair of the Treasury select committee. He has called for the government to revive the publication of distributional analyses following Budgets and Autumn Statements, which was ended by George Osborne last year (having been introduced by the coalition in 2010). 

In a letter to Hammond, Tyrie wrote: "I would be grateful for an assurance that you will reinstate the distributional analysis of the effects of the budget and autumn statement measures on household incomes, recently and mistakenly discontinued by your predecessor." He added: "The new prime minister is committing her government to making Britain a country that works 'not for a privileged few, but for every one of us'. A high level of transparency about the effects of tax and welfare policy on households across the income distribution would seem to be a logical, perhaps essential starting point." 

Whether the government meets this demand will be an early test of how explicit it intends to be in reducing disparities. 

George Eaton is political editor of the New Statesman.