Britain’s financial framework is not suitable for the purpose

Digest opened free editor

Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

It was not so intended. The independent office of budget responsibility Founded To ensure that UK governments reform their financial resources instead of filling the numbers. But after 15 years, we are witnessing a terrible scene of the International Financial Energy Agency’s tail shaking the government dog.

Rachel Reeves did not cut the advantages of luxury last month because she thought this is the right thing to do, but in response to the reduction of OBR expectations. This became painful painfully when the advisor is Added to discounts It was announced just one week ago because OBR officials differed with the ministers about the amount of original plans that will provide them. Of course, the advisor’s plans were given only a pass mark against its financial bases at all because the OBR view of the long -term economic capabilities in the United Kingdom is more optimistic than Every expected.

It is unacceptable that public services and taxes are appointed in the polling fund, but by unacceptable officials who are in a small office over the Ministry of Justice. OBR is not even an expert in its most important rule, as it evaluates the potential productivity growth in the UK. David Miles, one of the three officials, is frankly Confess last yearThis assumption is “no more than an educated guess, and may not have been terrible.”

I do not criticize OBR or the government here. It is the financial framework in the United Kingdom, its incentives and operations in the practice that led to this unacceptable result. There are four possible solutions.

First, as Robert Harrison, former Chief of Staff to Counselor George Osborne and one of the current framework engineers, ArgueThe OBR expectations will be less important if governments (conservatives and work) allow themselves more deadline against their financial rules. After that, it will not matter if interest rates rise or OBR became more pessimistic about expectations. The policy will not need to change and the head room will bear the recession.

Unfortunately, the incentives in the system oppose such a result. Why is only a deadline for ministers to spend? Why does the head hall leave another government after losing the elections? The financial framework has failed because everyone knows that the ministers will narrow against the rules and blame obr when they are forced to make tax decisions and difficult spending.

Second, we can enhance OBR so that its expectations are not produced for thousands of variables 52 employees Make educated guesses terribly. I was told that the International Energy Agency is Swing Skint, it cannot withstand a single subscription in any news institution. If you wander around Westminster, it may also lie in the discovery of a young OBR who wanders in the cabinet to sit at the single Bloomberg station to write market prices.

This happens when I also understand that the Bank of England.GreatThe increase in employment for its prediction process will add something like 100 new role. The Bank of Angel refused to confirm or deny this number. This combination is a hideous plotting of public resources, although I don’t see more money for OBR will solve the basic accountability problem.

Third, governments may be more large about expected changes. Obr calculated that Reeves was 54 percent of possible To pass its main financial base in 2029-30 after her luxury discounts, but only 48 percent before policy measures. These are the differences without material difference. The government should be more comfortable with these expected changes in a five -year deficit, but I think we have a Liz Tusss episode to blame the Labor Party.

Since any of the above, the other solution is to hand over guessing on productivity growth to ministers. OBR will continue to use its experience to assess the financial consequences of any economic expectations. No one else in the UK can do this task as well as these officials. But the chancellor must take responsibility for the most dependent part of her expectations.

Reeves will need to persuade the markets that the main economic assumption of the government was reasonable. The risks, of course, are that expectations may lose credibility with the markets and we all pay a price.

But this danger is less than the threat to the democratic legitimacy offered by unaccounted officials responsible for the most sensitive taxes and decisions. Very reluctantly, I reached the point of view that the ministers should have the right again to set their productivity expectations. They need to take responsibility for their proper position.

[email protected]