Orthodoxy was always the intention of the OBR

Tweet

 

Criticism from within the Labour Party about the remit and actions of the Office for Budget Responsibility and the slavish adherence to its conclusions by the Chancellor is long overdue. It’s a pity that it’s taken an accidental slide into an election for a new deputy leader to wake anybody up, but no sooner had Haigh launched the mission than she declared that she was not going to be a candidate. Whether it was never her intention or whether the campaign was halted before it got going by the stitch-up giving candidates just days to collect 80 supporters from among the party’s MPs is unclear. Paradoxically, the fact that the attack on financial orthodoxy is no longer associated with an internal leadership election might make it easier to take it seriously. Candidates for internal elections in the Labour Party have traditionally argued from the ‘left’ to attract the votes of the members, only to end up moving to the right once elected. Sir Starmer is a classic example of the genre.

I don’t agree with Haigh’s definition of the problem in terms of the OBR having been “Originally created to provide an independent check on economic forecasts and help policymaking” or that it “has morphed into a gatekeeper of orthodoxy”. It has always seemed to me that it was a deliberate trap set by George Osborne as some sort of insurance against a future Labour government, and that institutionalising (Tory) orthodoxy was its main aim from the outset. The enthusiasm with which Labour ran into the trap was astounding. Some have interpreted recent appointments by Sir Starmer as an attempt to undermine his Chancellor, but those he’s appointed seem almost to be even more steeped in orthodoxy than Reeves herself: more about keeping her on the narrow track and reinforcing her view of economics in 10 Downing Street than undermining her.

Other than that faulty analysis of how we got to where we are, Haigh makes some very good points. Her claim that “It is beyond comprehension” that the Bank of England is paying interest on central bank reserves to commercial lenders echoes a point that a number of economists have repeatedly made – and there are plenty of examples of other countries that do not make such payments. At a stroke, not making these payments (or even just reducing the entirely arbitrary interest rate paid) would ‘save’ up to £40 billion a year, and make a big difference to the government’s income and expenditure accounts. The only reason for not changing this is a Chancellor and PM who are utterly wedded to the ‘household analogy’ for government accounts and think that austerity and a small state are really good ideas.

Sadly, someone holding views such as those expressed by Haigh would be extremely unlikely to be elected as Labour’s deputy leader, even if she were to stand; and, either way, her influence on government policy from outside the cabinet (and there is little chance of Sir Starmer appointing the winner of the contest to his cabinet, with the position of deputy PM already neatly sewn up) will be small. Not enough to change the narrative and approach of her party’s leadership, most of whose MPs seem quite content to continue down the road of facilitating Farage. They are far too comfortable languishing in the trap which Osborne laid for them.