Labour’s OBR Proposal

It is not the stuff of headlines, but Ed Balls conference speech contained an interesting idea for extending the remit of the Office for Budget Responsibility (OBR). Although this could in theory have major implications for the 2015 debate on UK fiscal policy, I suspect in practice it will not. But first some background.

Labours failure to contest the profligacy myth

In the year after the 2010 election, the new government relentlessly plugged the line that Labour’s past fiscal profligacy was central to the need for current austerity. It was a smart line to push, so it didn’t worry those making it that it was not true. I’ve documented the facts in a peer reviewed article, in various blog posts, in a debate with Jeremy Warner (follow links back from here), and elsewhere. I have no political interest in pursuing this point, beyond a perhaps naive belief that evidence should not be distorted for political ends.

Preoccupied with electing a new leader, Labour did little to counteract the myth at the time. Whether they could have done anything in the face of a largely right wing press I do not know, but the result had two key negative consequences. First, there was no effective political opposition to austerity. Second, Labour or its supporters fell over themselves any time they were asked whether their proposals might lead to additional borrowing. It is also clear that the government will return to this line of attack in the next election, meeting any policy proposal that involves spending money with the accusation that this signifies a return to Labour’s profligate ways.

The OBRs remit

The OBR is a ‘fiscal council’ or ‘independent fiscal institution’ established by the current government, of which there are now many international examples. (Calmfors and Wren-Lewis analyse in detail eleven that existed in 2011.) The two most longstanding are the CBO in the US and the CPB in the Netherlands. Both these institutions can cost opposition as well as government fiscal plans, if they are requested to do so, although the CPB approach appears less open to political game playing than the CBOs. The OBR has a much more restricted remit: it can only cost the governments announced fiscal plans.

Labours new proposal

Ed Balls will ask the OBR to cost the fiscal proposals it puts to the electorate in the 2015 election. If the OBR did this, this would either expose Labour’s dodgy fiscal arithmetic, or deflate claims their proposals were not properly costed. As Labour would do its utmost to prevent the former, this looks like a smart move politically. I also think it would improve the level of the macroeconomic debate, which is why I have often suggested the OBR might be given this role.

The only problem is that the OBR cannot say yes under its current remit, and it would also need additional resources to undertake this. In theory the remit of the OBR could be extended before the next election, but the government will block this, because it does not want to lose a valuable political weapon. (The block will probably come in the form of some delaying tactic, perhaps linked to a formal review of the OBR’s performance after 5 years.)

So Labour will not be able to say that its plans have been costed by the OBR, but only that it is happy for the OBR to do this. As it knows this offer will not be taken up, its political force appears weak. I cannot help but remark that this shows how foolish Labour was in government to reject the idea of a fiscal council. If they had created a fiscal council with wider powers than the current OBR, they would be in a much stronger position now.  

In practice, therefore, anyone seeking the facts on the fiscal plans of the opposition during the election will have to turn to the expertise at the widely respected Institute of Fiscal Studies (IFS). So for 2015, not much will change. But in the longer term the momentum for extending the OBR’s remit is building, which I regard as a very positive development.