Today, the cross-party House of Lords Economic Affairs Committee
has published its report, ‘Fortifying the fiscal framework'. The
report concludes that:
- The current fiscal rules can be met without any actual
reduction in debt being achieved over the long term.The
Government should set out an additional commitment such
that in normal times debt in the third year is lower than in the
first year. This will add credibility to the existing target.
- When the Government operates with a small fiscal buffer, the
potential for non-compliance with the fiscal rules increases,
leading in turn to speculation about policy measures to ensure
compliance; this encourages a pre-occupation with the headroom
figure itself. The Government should commit to operating
with substantially larger buffers that reflect the
unavoidable forecast errors in the OBR's projections used to
assess compliance with the fiscal rules.
- Repeated changes to the fiscal rules over the years have
undermined the credibility of the fiscal framework and
irrespective of their merits, further modifications must be
seriously considered within this context. Changes to
existing fiscal rules should be formulated as part of a
concerted, in-depth consultation exercise conducted in a
period where there is no formal political campaigning.
-
The OBR is a valuable component of the UK's fiscal
framework as it substantially enhances the transparency of
fiscal policy. Descriptions of the OBR policing or constraining
government policy are misguided. They merely monitor
compliance with the Government's self-imposed rules. And
concerns that the OBR does not adequately recognise the impact
of various policies are equally misplaced. If the Government
believes in the value of certain policies, it is free to
implement them irrespective of whether the OBR scores them. If
they are indeed beneficial, the positive effects will be
registered in future projections by the OBR.
- Further, in line with international best practice,
the OBR should continue to carry out two forecasts per
year but the Government should change the timing of the Spring
forecast so that the length of time between the two forecast
events is closer to six months. This would reduce
the pressure to announce policy in the Spring Statement when
there is more than six months until the Budget.
, Chair of the House of
Lords Economic Affairs Committee, said:
“The UK's fiscal framework is frail. The Government's behaviour
must change with significantly larger fiscal buffers becoming the
norm and these buffers not being used as a piggy bank that can be
‘raided'.
“We want the Government to boost the credibility of the existing
debt target by the setting out of an additional debt target which
will show cumulative performance of three years.
“The frequency with which fiscal rules are changed have simply
compounded the problem. If the Government were ever to change the
rules, it should do so following a consultation that would allow
the costs and benefits of alternatives to be properly
considered.”
