The decision to dispense with the OBR proved catastrophic for Kwarteng and Truss after investors took fright at the lack independent scrutiny amid fears that the unfunded plans would send both inflation and debt spiralling. – Reuters
LONDON: Former UK Chancellor of the Exchequer Kwasi Kwarteng called his ill-judged £45bil (US$53bil or RM242.45bil) tax giveaway a “growth plan” to avoid having to publish a bleak economic forecast alongside his boosterish September statement, according to the Office for Budget Responsibility (OBR).
Richard Hughes, chairman of the independent fiscal watchdog, told lawmakers that had the fiscal event been called a budget, Kwarteng would have been obliged to release an official economic outlook that included the damaging impact of high gas prices and rising interest rates.
Kwarteng had an updated forecast on his desk on arriving at the Treasury on Sept 7, but within two days told the OBR its services would not be needed, Hughes said. “We had forecasts ready. The chancellor didn’t ask us to publish them, and they remained confidential.”
The decision to dispense with the OBR proved catastrophic for Kwarteng and Prime Minister Liz Truss after investors took fright at the lack independent scrutiny amid fears that the unfunded plans would send both inflation and debt spiralling.
The market backlash that followed forced Truss to fire Kwarteng, jettison the plans and resign.
Asked by Harriett Baldwin, chair of the Treasury Committee of MPs, whether lawyers had advised the OBR that use of the word “budget” would have triggered a full forecast, Hughes said: “They did. The law says we have to publish two forecasts a year and one has to accompany a budget.”
In March, Rishi Sunak delivered a spring statement as chancellor and a budget was scheduled for the fall. During the Tory leadership campaign over summer, Truss spoke of using “an emergency budget to kickstart my plan to get our economy growing”. She later dropped the word.
Last week, Jeremy Hunt, the new chancellor, published an autumn atatement with OBR forecasts.
Hughes said the projections he gave Kwarteng in September included the impact of high energy prices and interest rates that had soured the outlook compared with the forecast in March. The OBR’s latest outlook showed the economy falling into recession and a big hole opening up in the public finances.
Hughes suggested to the Treasury Committee that the law could be tightened to ensure any future discretionary fiscal event is accompanied by an independent forecast.
Opposition Labour Party MP Angela Eagle asked Hughes whether Parliament should consider “things that might protect your position in terms of changing legislation”.
He said: “There have been instances where discretionary fiscal decisions have been made without forecasts. The health and social care levy and health settlement alongside it was an example.
“Good practice as defined by anyone, not just by us but by international organisations that set standards for these things, would say that you shouldn’t make fiscal decisions without being informed by an updated view of the economic outlook.”
Sunak, now the prime minister, introduced the £18bil (RM82.36bil) health and social care levy in 2021. It has since been scrapped.
Andy King, a senior OBR official, also warned MPs that the triple lock, which guaranteed the state pension rises in line with the highest of inflation, earnings or 2.5%, is “a big pressure on the long-term public finances.” He said the 2.5% minimum is binding and “ratchets it up”.
Hughes said the size of the state and the tax burden are back at historic highs. — Bloomberg
