The newly elected Prime Minister was telling the truth when he said ‘the work of change begins immediately’ as the Budget Responsibility Bill is introduced
Following the King’s Speech a law is being introduced so that the Office for Budget Responsibility (OBR) ‘can’t be sidelined’ when making decisions that impact the finances of taxpayers.
This move is a direct response to the disastrous mini Budget in September 2022 when the Truss government did not get the Office for Budget Responsibility to review their spending plans leading to the economic turbulence and soaring interest rates.
The government’s objective is to ‘fix the foundations of the economy, helping protect family finances and creating conditions for growth’.
In a letter to Richard Hughes, chair of the OBR, chancellor Rachel Reeves said: ‘I am writing to inform you that I am bringing forward legislation to introduce a new ‘fiscal lock’.
‘I am committed to the principle that every announcement making fiscally significant policy commitments will be accompanied by an independent Office for Budget Responsibility forecast commissioned in the usual way.’
The OBR will be entitled to conduct and publish its own report to scrutinise the government’s fiscal plans.
However, this fiscal lock will not be applied to policies that are temporary – in force for under two years – or in reaction to specific emergencies, such as the pandemic.
Reeves said: ‘The government values the OBR’s vital role in providing independent, credible, and high-quality analysis and I look forward to working with you and the other members of the Budget Responsibility Committee.’
The Bill will apply to permanent tax and/or spending commitments worth approximately £30bn, or more than 1% of the UK’s GDP. Any measure which is to last less than two years will not have to be assessed by the OBR.
Additionally, it is up to the OBR to decide if the fiscal lock has been ‘triggered’, it would then inform the Treasury Committee of its intention to produce an assessment.
In Hughes’ response to Reeves, he wrote: ‘As I said in my testimony before the House of Commons Treasury Committee in November 2022, it is a good principle of fiscal policymaking that major fiscal decisions should be based upon, and presented alongside, an up-to-date view of the economic and fiscal outlook.’
Louise Hellem, chief economist at the CBI said: ‘Market stability is a key foundation to enabling economic growth and business investment.
‘Ensuring large changes in tax and spending policy are always subject to an independent assessment by the Office for Budget Responsibility will give businesses and investors additional confidence in the stability of the public finances.’