Made to be broken? Reeves urged to keep fiscal rules
Chancellor Rachel Reeves has been urged to keep her fiscal rules amid growing calls for tweaks to be made to factor in long-term investments and demands for higher defence spending.
Richard Hughes, the most recent chair of the Office for Budget Responsibility (OBR), called on Reeves to see out her fiscal rules through parliament.
Appearing before the Treasury Committee alongside Robert Chote, another former OBR chief, Hughes lamented the short life-span of fiscal rules set by previous Chancellors and suggested public finances would be best protected by a commitment to maintaining the current fiscal rules.
His comments grate against calls from Labour backbencher Louise Haigh and think tankers at the Institute for Fiscal Studies for the rules and overall framework on tax and expenditure to be overhauled.
“My heart sinks every time there is a discussion about setting a new set of fiscal rules for this country,” Hughes said.
“I would like to see some of them met at some point.
“From my perspective, rules that are simple and are stuck to are more important than rules that are complicated, that you can pick and choose.”
Reeves tweaked the framework at last year’s Budget to make the OBR only score the government on her borrowing and debt targets once a year.
It means next Tuesday’s Spring Statement will only feature economic forecasts by the watchdog rather than full fiscal forecasts providing an analysis of government policies and headroom.
The Liberal Democrats have suggested the government should explore issuing new defence bonds to boost spending while some Labour backbenchers have called for fiscal rules to be revised.
Reeves warned on long-term risks to public finances
Hughes, who resigned last year over the inadvertent leak of the Budget, previously criticised Reeves’ fiscal rules during an appearance at the House of Lords’ Economics Affairs Committee.
He said the Chancellor’s rules did “very little to rebuild fiscal resilience” while rolling targets offered the government a “constant excuse” to loosen fiscal policy in the short term.
Chote and Hughes, were grilled by Treasury Committee members on Wednesday afternoon on whether the OBR took enough account of growth policies taking place over a ten-year horizon.
Tory MP and former City minister John Glen, as well as Labour backbencher Yuan Yang, were among those raising questions about whether the OBR should score policies taking effect over a longer period of time.
Former transport secretary Lousie Haigh also wrote in the New Statesman this week that five-year forecast windows risked “entrenching decline” and failing to take a fair view of the impact of public investment on productivity.
An IFS report last week also recommended the adoption of a traffic lights system in the UK’s fiscal framework over adhering to specific borrowing and debt targets.
Both former OBR chiefs pushed back on the ideas, arguing that such changes could be taken advantage of for political framing while policymakers often lacked the discipline to save funds when more money became available to the public purse.
“If you want to have an environment which is more conducive to take, and to stick to, long-term decisions, persuading people that you are not going to spend any good fortune that comes down the way and ignore any weaknesses is a good place to start,” Chote said.
Rules are made to be broken?
Hughes argued that fiscal rules had an average life span of shorter than two years.
“What is really unique about the UK fiscal rules is how frequently we abandon them,” he said.
“No fiscal mandate has been around long enough to actually be measured in outturn.
“We shouldn’t be surprised that we have one of the highest deficits in Europe and a rising level of debt.”
The most recent OBR chair also called on the Chancellor to take greater notice of the mid-year fiscal risks and sustainability report, which offers 50-year views on problems facing the UK economy over a longer period, including the effects of an ageing population, climate change and technological advances.
He said he was disappointed by the lack of response provided by the government when the reports were published as they offered a way into the government taking a more long-term view on policymaking.