Since last Friday (23 September) the government has caused a dramatic run on the pound, forced the removal of almost 1,000 mortgage products, and triggered a “material risk” to the solvency of the country’s pension funds. For many people that would be enough for one week, but Liz Truss and Kwasi Kwarteng went for one more push this afternoon (30 September) when they announced that they will not release the forecasts of their own regulator, the Office of Budget Responsibility (OBR), until 23 November.
The average person could be forgiven for thinking that the question of whether the OBR is allowed to publish a report or not is a bit dull. But this is a question with serious implications for your energy bills, your mortgage, your pension and your employment.
The OBR is an independent regulator that forecasts the impact of the government’s fiscal plans. It’s required to publish two forecasts per year – usually with the Spring Statement and the regular autumn Budget – but it can publish more. When it became clear that the government would need to make a historic intervention in the energy market in July, the OBR agreed with the Treasury to begin preparing economic and fiscal forecasts. But as the chair of the Treasury Select Committee, the Conservative MP Mel Stride, told me last week, Kwarteng kept these reports from the public – and, more importantly, from the investors who pay up front for government spending.
The very large sums the government plans to spend are raised by selling debt, in the form of bonds (known as gilts), to anyone who wants to buy them. The price of the bonds (and the cost of the debt) is decided by how many people want to buy them. All prices change relative to the amount of information available. You’d pay less for a car without a full service history. Try to sell something on eBay without adding any pictures and you won’t get much for it. Try buying a house without getting a survey done and you won’t get a mortgage.
What the government is trying to do is even worse, however: it is trying to sell a product about which it is clearly withholding information. If you were told there was a survey on a property, or the log book for a second-hand car, but that the seller was preventing you from seeing it, you would rightly walk away from the transaction.
Presumably, the government’s hope was that markets would simply be persuaded by a clever chap giving a decent speech. But this displays a fatal misunderstanding of who – or rather what – actually trades in the market.
A few years ago I interviewed the person who built the system used by BlackRock, the world’s largest asset manager, to price the risk on more than $20trn-worth of securities. These systems exchange tens of billions of data points per day and turn them into simulations, constantly repricing the risk of everything the market can value. This is how almost all securities are priced in the market – by machines that make very sophisticated and wholly unsentimental risk models based on the information available. The most basic calculation in this system is that less information equals more risk.
Refusing to publish the OBR reports is not a mistake, however, but an indication of just how callous this government’s disregard for economic reality is: information that could save the country billions in debt interest and stabilise a financial crisis is being suppressed, because it could be interpreted as critical of the government’s policy.