Britain’s fiscal framework is not fit for purpose

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It was not so intended. The independent budget responsibility office has been established to ensure UK governments reform to their financial resources instead of filling in 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 painfully clear when the advisor added to the discounts announced only one week ago because OBR officials did not agree to the ministers on the extent of providing the original plans. Of course, the chancellor’s plans were given only a pass mark against its financial bases at all because the OBR view of the long -term economic potential in the UK is more optimistic than each other forecast.

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. While David Miles, one of the three officials, was publicly recognized last year, this assumption is “more than just an educated guess, and he may not learn terribly.”

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, the chief of staff, has previously argued to Chancellor George Osborn and one of the current framework engineers, that OBR expectations will be less important if governments (conservative and employment) allow more space against their financial bases. 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 strengthen OBR so that its expectations have not been produced for thousands of variables on a group of employees by 52 employees who do not guess terrifyingly. 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 also happens when I understand that the “large” bank of England in the recruitment of the prediction process will add something like 100 new houses. The Bank of England 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 said that Reeves was likely to pass by 54 percent of its main financial base in 2029-30 after her well-being cuts, 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.

Chris.giles@ft.com