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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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.