Posts Tagged ‘OBR’

In the wake of McBride, we need an OBR style independent regulator for political conduct

23/09/2013, 01:54:06 PM

by Anthony Painter

This morning’s announcement that Labour is going to seek OBR audit of its fiscal plans in 2015 is a smart one. Tactically, it deflects the sort of ‘black hole’ attack from the Conservatives that we have seen over the weekend. The Tories are terrified by this- hence their rejection of the idea. Has there been a more shoddy piece of work coming out of HM Treasury than its ‘analysis’ published over the weekend? Secondly, it will mean that Labour will have to be meticulous in the preparation of its plans. This may help rebuild trust in Labour’s ability to manage public finances.

And thirdly, crucially, it may help to restore some faith in politics. If that takes external audit then so be it.

There will be much scoffing at this point. In a Today programme interview this morning, Ed Balls was also asked about Damian McBride and his own role in the Gordon Brown political operation. These seems like separate issues. However, trust in fiscal policy, politics, competence, fairness are all connected. The question is how can trust be restored- not just in Labour but politics more widely.

Poor behaviour can have an institutional check. Whether it is over-spending, under-taxing, setting interest rates, regulating industry or the personal destruction of political rivals.

Now, I’m not proposing that we give the OBR responsibility for political conduct. However, the principles of monitoring and audit could apply. Instead of brushing the McBride revelations under the carpet and pretending it’s all in the past when we know that either it isn’t or has the potential to occur again, Labour could act decisively instead. It could establish mechanisms of monitoring and sanction.

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Osborne’s reputation for economic competence is fatally damaged. Labour must now start restoring theirs

23/04/2013, 12:13:09 PM

by Matthew Whittley

Perceptions of economic competence will largely determine who takes power in 2015. It is well-known that Labour has its work cut out to regain trust with the nation’s purse strings, but if anyone needed further proof that the economy isn’t safe in George Osborne’s hands, the need look no further than today’s economic news.

The latest figures tell us that there has been no improvement in underlying borrowing, which is has been running at almost the same level for the past two years. According to OBR forecasts, it will be around the same this year. As a result of the failure to stimulate any growth in the economy, the government is now set to borrow £245 billion more than planned

George Osborne’s main opportunity to do something about the hole he’s dug for the nation, was in March with the budget. But he blew it: the budget amounted to no more than a “do nothing” series of holding measures.

With household budgets squeezed and business lacking confidence to invest, Osborne should have prioritised growth by borrowing to invest in capital projects, rather than borrowing to finance failure as is currently happening. One doesn’t need a PhD in macroeconomics to know that capital spending has a huge multiplier effect on growth.

However, the derisory £2.5bn of capital investment promised in the budget falls way short of what is required to kick-start the economy. To put this figure in context, the Economist, hardly a bastion of Keynesianism, recommended an extra £28bn of infrastructure investment.

It should have become clear by now to him that the debt can’t be reduced in the absence of growth. The UK has grown only 0.7% since the third quarter of 2010. During that time, Japan and Italy are the only major G20 economies to have performed worse than the UK.

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The unravelling of the deficit strategy

22/06/2011, 10:12:16 AM

Labour had a strategy for cutting the deficit – it was called GROWTH. The government’s strategy was to cut spending. The consequence of those cuts is undermining growth, and that now risks blowing apart the deficit reduction.

In last week’s figures, retail sales for the month of May slumped to their lowest level in 16 months.  There is a risk that growth is about to stall.

The OBR provided a pre-June Budget prediction of the 2011 budget deficit under Alistair Darling’s budget. So, with our libraries still open, with EMA, with future jobs fund, no VAT rise etc, the borrowing in 2011 would have been 8.3%.

OBR June 2010 predictions based on Labour’s deficit reduction plan

20102011201220132014
Growth1.32.62.82.82.6
Borrowing10.58.36.653.9
Unemployment8.1%7.9%7.4%6.8%6.3%

Since the June emergency budget, the OBR has consistently downgraded 2011 growth, and increased its prediction of government borrowing. The graph shows the changes.

The current predictions for growth of 1.4% will result in borrowing of 8.1% of GDP, just below that predicted for Alistair Darling’s budget. But, if growth falls to 1.1%, then the government’s cuts will not only all have been in vain, the cuts could plunge the economy into a Japanese-style high deficit deflation.

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How should the nation spend its windfall – the “OBR incompetence bonus”?

22/02/2011, 04:01:03 PM

The 3 members of the OBR budgetary responsibility committee, by their incompetence, have bequeathed the nation a windfall. The question surely, in which case, is how should we spend it? Restore EMA? Or the future jobs fund? Yesterday they told us we couldn’t afford to. Well today we can.

The ONS published today the level of public borrowing for the current tax year 2010/11. The OBR’s prediction was that by January, the government should be borrowing £4bn less than they did last year. Today, the figures have come out as £14bn. In fact, January was the first month since June 2008 when the government didn’t borrow.

The source of this error is the underestimation of the rise in tax receipts from the recovering economy.  This is rising at 8.4% versus the OBR’s prediction of 6.7%. Now, what’s 1.7% amongst economists?  After all, Mervyn King is running inflation 3% above his mandated rate.

However, this 1.7% is at £10bn. And that is quite a lot of money. As everyone knows, we’re facing an epidemic of youth unemployment, and restarting the future job’s fund would only cost £1bn. Re-instating educational maintenance allowance would be £1bn. And £7bn is what the government is cutting out of the welfare budget.

In fact, these errors, small as they are in economics terms, are having enormous effects on our economy and our future.

Never mind that there wasn’t a single economist that predicted the global economic crash. Forget that this is the worst global financial crisis since the 1930s, put together with the largest globally co-ordinated government fiscal and monetary intervention. How making any predictions of how the economy would perform in this backdrop wasn’t going to end up like putting be the tail on the donkey speaks volumes of the hubris of the economics profession.

The OBR’s task was always going to be difficult, but its way-off prediction of fiscal disaster has allowed this government to imperil the economic success of our future generation.

The OBR committee are their intellectual stool pigeons.

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