OBR chiefs warn jostling Labour MPs against fiscal rules change
Office for Budget Responsibility chiefs have warned Labour activists against changing the fiscal rules and overall framework to account for longer term impacts of government investment.
The OBR’s David Miles and Tom Josephs said a ten-year forecast horizon would make for a “less credible” economic report and may not have any impact on bond investors.
The fiscal watchdog, which currently does not have a sitting head after the sacking of former chair Richard Hughes due to a leak, currently covers a five-year window, as set by the Chancellor.
Labour backbenchers, principally former transport secretary Louise Haigh, who has been a critic of Rachel Reeves’ policies and supported Andy Burnham’s rise to Downing Street, have called for an adjustment to the fiscal framework to cover long-term investments and growth effects.
But Josephs hit back, saying: “Policy commitments made over a ten-year basis may also be seen as less credible, potentially .
“There are certainly some policies… which are likely if they are sustained over a ten-year period would have increasing benefits
“I think the question is the degree to which those commitments would be seen as credible and therefore influence gilt pricing in the short term.”
The two economists appeared before the Treasury Select Committee, which is set to publish a report reviewing the OBR’s work and whether its relationship with the government is fit for purpose.
Miles opens door for tweaks at OBR
Intense debates over economic policymaking and the fiscal framework have dogged the Labour Party during Sir Keir Starmer’s recent leadership troubles, prompting fears among gilt traders that a Burnham or Angela Rayner premiership could lead to fiscal loosening.
Burnham’s spokesman said he would keep Reeves’ fiscal rules, though stated plans for nationalisation of utility companies have raised eyebrows in the City.
Haigh has been one of the chief critics of the fiscal framework, writing in a left-wing journal recently that the Treasury “defaults toward caution” and that the fiscal rules required reform after a current budget surplus was achieved.
Earlier in the day, the Treasury Select Committee heard from the chair of the Dutch Authority for the Financial Markets and former Congressional Budget Office director Douglas Elmendorf, who both broadly supported the introduction of a longer-term forecast.
Miles said much of the criticism around the Budget process came due to the low amount of fiscal headroom left by the Chancellor previously before it was increased to over £22bn.
However, he added: “There is more that the OBR can do and will try to emphasise the broader context of the situation.”
The OBR’s next set-piece events will be to conduct a review of recent fiscal forecasts and to publish its sustainability report in the summer, which has previously raised questions over the triple lock pension, costs of net zero and the impacts of rising gas prices on public finances.
Miles and Josephs urged the government to provide a fuller response to the fiscal risks and sustainability report, claiming recent leaders had given it little attention.
Miles said the UK’s fiscal framework could be better improved by taking a more “nuanced approach” on public finances rather than focusing entirely on headroom levels.
OBR chiefs also warned against making the fiscal watchdog scrutinise political party manifestos ahead of elections as it could “create risks over impartiality”.