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

Nicola Sturgeon. Photo: Getty
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Nicola Sturgeon's half-hearted "reset" is not enough to win back voters to the SNP

Election campaigners report that the doorstep feedback suggests the First Minister is now seen as aloof, with little interest in the average voter’s concerns.

In Scots law, under a charge of robbery, theft, breach of trust, embezzlement, falsehood, fraud or wilful imposition, the accused may be convicted of "reset". It’s not clear which of these particular terms Nicola Sturgeon had in mind this week when she used that word to describe her reformed plans for a second independence referendum. Fraud seems a little too strong. Breach of trust or wilful imposition are perhaps closer to the mark.

It’s been many, many years since the SNP has seemed this unsure of its footing. Fair enough: who in politics isn’t, these days? But the slow-motion car crash that is Scotland’s governing party deserves a prime-time slot all of its own. "The SNP has squandered what was an extraordinarily strong position," says a thoughtful observer from the opposition benches.

If Sturgeon’s authority hasn’t gone – and she continues to rule Scotland’s most popular mainstream party, both at Holyrood and Westminster – it has undeniably taken a shellacking. The aura of invincibility that surrounded the First Minister’s early years in power is no more, both within and without the SNP. "What struck me as she announced her 'reset' was that a woman who was often listened to in respectful silence in the past found herself being shouted at by Labour, the Lib Dems and the Tories," says a source. "There was giggling and mockery, which is new. She seemed diminished."

My own judgement is that the reset proposal, which amounts to little more than extending the deadline for a second indyref by six months to a year, will do almost nothing to woo back the half-million voters who deserted the Nats between the 2015 and 2017 general elections. In my experience, these people don’t want the referendum delayed for six months, they want it off the table. They also want the SNP to shut up about it, and they want to see the public services and the economy given full attention. That is the challenge they have set the First Minister in the four years left of this Holyrood parliament. In an enlightening article in the Guardian this week, Severin Carrell quotes voters from the "Tartan Tory" areas that recently unseated Alex Salmond and Angus Robertson. "Fed up with the SNP, simple as."

Fed up. Sturgeon’s greatest error – a charge levelled by internal critics – was to force and win a vote at Holyrood on the holding of another referendum, after the Brexit decision but before Article 50 was triggered. In the minds of voters already worried about leaving the EU and looking for what we might call strong and stable leadership, this merely confirmed the SNP’s monomania: that it saw literally everything as a pretext for independence. The step looked cynical, it looked rushed, it looked, well, desperate.

To be fair to the First Minister, she was playing a double game. Obviously, she supports breaking up the UK and needs to continually feed the beast that is the separatist movement, but she also hoped the looming threat of another referendum would give her leverage as the UK negotiated Brexit, perhaps to secure a distinct deal of some kind for Scotland. She was wrong. "Theresa May would show up for meetings with the various leaders of the UK’s nations, read from a script and then refuse to take questions," says an SNP insider. "The whole thing has been a shambles. The British government just isn’t interested."

This deliberate mutual misunderstanding is a problem not just for the SNP, but for the smooth running of the UK. Pre-devolution, a deal such as that struck with the DUP would have been discussed in Cabinet where powerful Scottish and Welsh secretaries would demand and usually emerge with some goodies for back home. Now, each nation is run by a different tribe, the relationships are oppositional and antagonistic, and no side wants to make things easier for the other. Britain has stopped talking to itself, and stopped trading with itself. We have spiralled off into our own mini-cultures, which often bear little resemblance to each other.

Ultimately, though, Sturgeon looks like the author of her own misfortune. Her tone in Holyrood as she announced the ‘reset’ was unapologetic and belligerent. There was no real humility or admission of error, and no sense that an indyref was in any way off the table. Election campaigners report that the doorstep feedback suggests she is now seen as aloof, with little interest in the average voter’s day-to-day concerns or in listening to them. Her team seem unable or unwilling to absorb this. "They’re still pushing far too hard," says one Tory source. "The only way I can make sense of it is that they’re playing it like a poker hand. They’ve come too far and feel they have no choice but to go all-in. But it’s a losing hand."

There are only two routes I can see that might, perhaps, make something of a difference. The first is a comprehensive reshuffle that brings some of the smarter, younger MSPs into the government. Many of them, as newcomers to the cause, speak differently about independence and their reasons for joining the SNP than do the generation of Sturgeon, Salmond, John Swinney and Mike Russell.

The second is to return to the debate about devo max or federalism. Again, in conversation with the new generation of Nats you are more likely to discuss these options. A number of them are technocrats who have a view of the way Scotland should be governed. They might see independence as the best way to achieve this, but they are also open to a looser relationship within the UK, one that might involve greater powers around taxation, spending and borrowing. With every UK region outside London running a chunky deficit, Scotland could set its own deficit-reduction target and develop a plan to get there. Not only would that be good for the UK economy, it would also allow the SNP to demonstrate that a separate state could work - and indeed, would work.

In short, the SNP will not whine its way to independence. Its best option now is to do what the Scottish people are asking it to do: make a better job of running the place, and stop talking about independence for a while. First, though, that requires the party to listen.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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