Responsibility is the key to stability
WHENEVER there is a change of government, and particularly so when the economic circumstances are difficult, you can always rely on the new administration to come out with something along the lines of: “We knew things were bad but now we’ve had a chance to look at the books it’s clear they are even worse than the last lot were letting on.”
Usually, and this time is unlikely to prove any exception, this ritual amounts to an attempt to justify tax increases of rather greater magnitude and scope than the winning party (or, in this case, parties) dared to include at manifesto time for fear of frightening off the voters.
The creation of the new Office for Budget Responsibility has enabled the new Conservative-led coalition to go one stage further by referriing the spending decisions of the previous regime for an independent audit.
However, the real significance of the OBR will be hard to judge until we have had a chance to see how it affects the judgement and actions of the government which is actually in power.
Alongside his role in resisting Tony Blair’s mindless enthusiasm for UK membership of the European single currency, Gordon Brown’s most notable achievement as Chancellor was to hand control over monetary policy to the Bank of England.
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However, these were pretty much his only two notable achievements, and it is now a matter of record that while the bank’s Monetary Policy Committee kept its side of the bargain in controlling inflation, Mr Brown chose to drive a coach and horses through his own “Golden Rules” for fiscal policy.
The level of borrowing was massaged by omitting liabilities under the Private Finance Initiative from the balance sheet while the goal of balancing the budget over the economic cycle became meaningless amid successive changes in assumption as to when the current cycle would end (and, indeed, when it had begun). There is, therefore, a clear need for a mechanism to ensure that fiscal policy is subject to at least some of the same discpline that is applied by the MPC to monetary policy.
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Whether the creation of the OBR achieves this objective remains to be seen. But if it does become a hallmark of George Osborne’s Chancellorship, let’s hope there are more good decisions to rank alongside it than two which Gordon Brown managed to chalk up.