Orthodoxy was always the intention of the OBR

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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.

Letting them know who's boss

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When George Osborne set up the ‘independent’ Office for Budget Responsibility 12 years ago, he surely intended it as a way of locking in orthodox thinking and making it harder for any future government to follow a significantly different path. That was in the days when the Conservative Party was the upholder of financial orthodoxy, but had only a slim grip on power in coalition with the Lib Dems. The possibility of a Labour government looked realistic and constraining the freedom of movement of that party would have looked, to a Tory, like a really cunning plan. Although Osborne admitted that having an outside body conduct an independent review of his budgets placed limits on him as well, it’s doubtful that it really worried him a great deal (it was, after all, his own fiscal orthodoxy that he was attempting to set in concrete); and it is certain that he never expected that his OBR would find itself in direct conflict with his own party’s government. But fortune-telling has always been a dodgy business at the best of times, and it’s easy to believe that he didn’t expect the fiscal fetishism of the Conservative Party of 2012 to turn into the doomsday cult of 2022.

In any event the ‘independence’ is more illusion than reality, when push comes to shove. The members of the Budget Responsibility Committee are appointed by none other than the Chancellor of the Exchequer, and it’s an iron rule of any power relationship that he who appoints can always find a way of unappointing if he needs to. But recent events have shown the limits of the ‘independence’ in another way as well: it turns out that the OBR can only produce a forecast if the government asks for one, and are expressly forbidden from publishing one if the government does not. And whilst the underpinning legislation requires the government to request that a forecast be produced for any budget, that which might look like a budget is not a budget within the terms of the legislation if the government simply decides to call it something else.

Various apologists for the government have come out with all sorts of excuses as to why the OBR couldn’t have produced a reliable forecast (as though such a thing actually exists in the first place) for this particular package, despite having managed it for previous budgets. The excuses have varying levels of credibility ranging from infinitesimal to zero but the inverse ratio between credibility and the absolute certainty with which some Tories present them is a wonder to behold. Not Truss herself, of course, for whom words are simply words, devoid of any meaning or expression. The OBR itself says it could have produced an analysis – indeed, that it even had one more or less ready for issue which it was not allowed to publish. Whether the government was aware of the content, or could even be bothered to look, is a currently unanswered question; the general assumption is that it wouldn’t have liked what it saw. The Boris Johnson approach to bad news from advisors (hands over ears and hum the English national anthem) is alive and well in Downing Street.

Today’s meeting between the members of the Budget Responsibility Committee and the Chancellor – to which the PM has invited herself as well – has been billed as an attempt to calm the markets by reassuring the OBR that the government is planning to set out how the apparent hole in the government’s finances will be filled. Perhaps. But given the arrogance and the absolute confidence that Truss and Kwarteng have that they know better than anyone else, it’s surely equally possible that their intention is to remind the OBR who’s in charge, and explain to them what they think so that they can go away and write it up as an 'independent' report. Given the way that they’ve reiterated time and time again over the past few days that their plans are the brilliantist ever, it’s hard to believe that there will be any contrition on display. Truss and Kwarteng are still wielding their spades with gusto – the enthusiastic hole-digging seems unlikely to suddenly stop today.