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Rachel Reeves, the shadow chancellor, has vowed to prevent a repeat of last year’s disastrous mini-Budget by beefing up the powers of the UK’s fiscal watchdog, declaring: “Never again.”
Reeves, writing in the Financial Times, said a Labour government would strengthen Britain’s fiscal architecture as part of an effort to prove she would be responsible with the public finances.
She said Labour would legislate to guarantee that any future chancellor making significant tax and spending changes would be subject to an independent forecast by the Office for Budget Responsibility.
Former chancellor Kwasi Kwarteng’s mini-Budget, presented on September 23 2022, contained £45bn of unfunded tax cuts but was not accompanied by the usual OBR forecasts, which added to market concern.
Labour would change the law, she said, to guarantee that the watchdog could independently publish a forecast of the impact of any fiscal event containing tax and spending measures above a certain threshold.
“With a Labour government, never will a prime minister or chancellor be allowed to repeat the disastrous mistakes of last year’s mini-budget,” Reeves wrote.
“During my time as an economist at the Bank of England I learnt a very simple lesson: your sums have always got to add up. Instability follows when that very basic truth is ignored,” she added.
Paul Johnson, director of the IFS, welcomed the proposals as a strengthening of the fiscal framework, but said that in practice there “could be an issue about what counts as a major tax or spending change”.
He said that while Kwarteng’s mini-Budget was clearly such a fiscal event, he asked what would have happened in relation to a policy like the Sunak government’s long-term NHS workforce plan. “That was in one sense a huge fiscal announcement — would that sort of thing count?”
Liz Truss, the former prime minister, and Kwarteng decided to sideline the OBR ahead of last year’s mini-Budget. The watchdog would have cast a verdict on the likely impact of the big package of tax cuts and energy bills relief.
Boris Johnson, after winning power in December 2019, toyed with the idea of ignoring the OBR ahead of his government’s first Budget, but the former chancellor Sajid Javid refused, according to a new book.
“Johnson and his top adviser, Dominic Cummings, came up with an eye-catching suggestion: why not just NOT do an OBR forecast?” wrote journalist Ben Riley-Smith in The Right to Rule. Johnson’s office denied the allegation.
Reeves said Labour would set out a fixed timetable for Budgets, with the main event held by the end of November each year and a spring update in early March featuring updated forecasts and minor policy changes.
In an emergency, where a chancellor had to make changes at speed and the OBR was unable to produce a forecast in time, the watchdog would fix a future date for when it would publish a forecast.
Reeves’s political aim is to try to remind voters of the chaos around the shortlived Truss government. Rishi Sunak, the prime minister, insisted this week that he had already restored order to the economy.
Sunak said he was on track to hit his target of halving inflation by the end of 2023. Jeremy Hunt, the chancellor, will set out an Autumn Statement in November but the main Budget will be next spring.
The idea of a fixed timetable for budgets, with tax changes announced well in time for introduction the following tax year in April, will be welcomed by former officials and economists who have long complained about the chaotic nature of UK policymaking.
The Institute for Government, Institute for Fiscal Studies and Chartered Institute of Taxation jointly published a report in 2017 calling for a single autumn Budget with more certainty, consultation and fewer measures introduced on the fly.
The certainty of the dates of a Budget would also be welcomed by the OBR, which has often complained it has not had sufficient time to scrutinise government plans.
The OBR declined to comment.
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