Let the OBR range more freely

And let it dive deeper into the weeds of political fiscal choices.

Today Ed Balls has called a debate on allowing the OBR to look at Labour’s fiscal promises, as well as those of the serving government. Interestingly, he appears to have the cautious support of both Danny Alexander and Robert Chote.

This move is generally being portrayed as Labour trying to use Osborne’s invention to bolster their own fiscal credentials. What Balls longs for is a headline saying “OBR: Labour’s figures add up”. No doubt that is of some value to Labour, whose economic credentials badly lag the Conservatives’ at a time when “economic competence” and “willingness to set out a tough fiscal plan” have become synonymous.

But I think it misses an opportunity, and Labour (and the LibDems) could be calling for the OBR to go even further. As I have tiresomely blogged already, the current forecasts of a historic Surplus do so only by relying on amounts for departmental spending that are frankly very hard to believe. It took me the back of half a fagpacket to show this. This reflects the tyranny of a particular Treasury convention.  Forecasts are made on the basis of: unchanged tax policy, unchanged benefits/AME policy; whatever the Treasury asserts that it will achieve in terms of capital investment and borrowing – and then the departmental spending figures are whatever comes out from a process of elimination. 

This is worth re-stating.  When the Government sets out figures for what it will spend keeping prisoners behind bars, healing the sick, educating students, defending the borders, cleaning the environment and building the roads, the sum of money it produces comes out by default.  It is “whatever is left over”.   Then, once the special ringfences around Health and so on are honoured, the other departments are …. whatever is left over from whatever is left over.  Yup, that’s how we work out how much to use to defend the realm.

To me, this is outrageous, but its true implications are masked from the general public by where the OBR pauses.  While it works out to one decimal place what will have to be spent on overall departmental spending, it doesn’t go the final half-inch and explain what that means for individual departments.  It would be trivially easy to do so – just as it would be trivially easy to work out the debt and deficit implications of different parties’ plans.  Hey, even I could do it.

The OBR should be tasked with working out the likely implications for individual departments of all three parties’ pledges.

A bigger prize for Labour etc would be to be able to say “Your fiscal surplus can only be achieved if you do XXXX to the NHS, YYYY to the schools system, or ZZZZ to the other departments”.  In my view, this would rebalance the debate in a very welcome way.  Currently, parties are needlessly specific about exactly what they plan to borrow in 5 years time, but deliberately vague about how.  Specificity is needed at the more micro level (this is particularly true for industrial support and anything else involving the private sector).  Against this, the bond market can take uncertainty around a few tens of billions of pounds (this is what markets are good for! Changed supply? Different price).

Maybe Labour are nervous that such a level of detail would reveal that they too are going to have to do some pretty horrible things if they get in power.  Maybe they just haven’t thought of it.  Or maybe the idea that more fiscal transparency might actually help them for once is too weird to take on board?

At the least, it will save me a few blogs.

(PS: a small slap on my own back – back in 2009 I helped write the only pamphlet worrying that the existence of the OBR might be used to stifle fiscal debate:

“There is a risk that an effective OBR
would have such a loud voice in the
fiscal debate that independent third
parties would be drowned out. ‘Fiscal
responsibility’ would henceforth mean
agreeing with the OBR. Just as Labour
ministers have responded to criticism
with ‘we have stuck to the fiscal rules’,
Conservative ministers would argue
that ‘the OBR tells us this is right’.”

Let’s prove me wrong.


Published by freethinkingeconomist

I'm former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc, and formerly in my mid-40s. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

7 thoughts on “Let the OBR range more freely

  1. “All 3 parties’ pledges”
    Does that mean you don’t want the LibDims to face the same or that UKIP should be excluded?

    I can see why you might not want it known that UKIP’s policies make far more sense than the assorted Luddite’s do.

  2. This really isn’t far short of “Let OBR run the country”, once the process you describe elsewhere in the peace – the aspiration that parties will have to get OBR government competence approval – kicks into play at the more micro-level.

    But quite aside from the small issue of democracy, OBS would be shite at running the country, because running the country is largely about running pubilc services, and OBR do not and could never get that.

  3. Hi Neil

    No, by all means chuck in UKIP. Your leader has spoken very warmly of the outstanding professionalism behind its previous manifesto. I hear people arguing about whether it constitutes the finest set of well tuned policies ever put together, or just the second finest after LBJ’s Great Society stuff. Tough call.

    Hi Paul

    You are being a tad melodramatic. Parties make statements about what they will do fiscally. They need to be evaluated – not for political content or correct judgement, but just so that people know what they mean. So, for example, if someone says “I will hit a Budget Surplus while also doubling MOD Spending and giving a free pony to every child called Lisa”, the OBR can say “weelll, that might well mean abolishing pensions”.

    It is a bit like what the IFS does. But with a bit more teeth.

    I agree that a small unit with a couple of million budget would be poor at running the country. Bang on


    1. Don’t think it’s particularly melodramatic to have an understanding of feedback mechanisms and path development.

    2. James Delingpole said the finest. Lets hope we can improve on it. With Roger Helmer’s energy paper we certainly should be. Mr Clegg will tell you about how manifestos get “outdated” though I am sure we will never dump our date as fast as he did.

      I don’t share your enthusiasm for LBJ’s achievement. Taken together with the Vietnam War it did provide a massive pseudo-Keynsian stimulus which I know you are always keen on. However I (& Keynes) do not share your enthusiasm.

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Freethinking Economist

Economic advice. No longer special.

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