The Giving Of The Fiscal Rules On Mount Sinai

Thou shalt not increase public borrowing

It’s not quite been 40 years (although it might feel that way to some) but the Labour Party has been wandering in the wilderness (out of government) since 2010. I mention this because Sir Keir Starmer today appeared to water down his earlier pledge that a future Labour government would implement a £28 billion green economic plan if the fiscal rules did not allow it.

I wrote back in December on why I think that Starmer would be wrong to attempt to emulate Bidenomics by introducing a UK equivalent of the Inflation Reduction Act. What is more, I do not want to get into a discussion about the rights and wrongs of increasing borrowing to fund public investment (that’s an article for another day). What I want to discuss (briefly) instead is the debate around fiscal rules.

Both the Conservatives and Labour appear to be treating the fiscal rules as though they are some immutable law of the Universe or that they were delivered to Moses on top of Mount Sinai and if they were to be violated then the country would be cursed. The fiscal rules are whatever the government of the day wants them to be. I’ve written before on why this isn’t necessarily an ideal situation and why that power should be taken away from politicians and handled by experts, but it is the current situation. If Labour wants to increase borrowing then that will likely increase the national debt and would go against the current fiscal rules and would not necessarily be a great idea but it is free to do so. It is completely at liberty to change the fiscal rules and so should stop passing the buck. Instead it should decide on what it thinks the fiscal rules should be and stick to them.

On the topic of buck passing, the OBR has again come in for a lot of criticism over the past few weeks from Conservative commentators. It has been likened to a left leaning think tank determined to thwart any tax cutting measures by the Tories. This, again, is nonsense. Leaving aside the fact that the OBR was initially set up by George Osborne as a trap for a future Labour government, the organisation is good at what it’s supposed to do - deciding whether or not the government is forecast to meet the government’s own fiscal rules. It is not an avenging angel who will smite the government down for breaking the fiscal rules. The Tories are free to change its fiscal rules or change the mandate of the OBR or both. The OBR only really causes a government problems if it decides to do a Truss-Kwarteng and sideline it.

I believe there is generally a case for fiscal conservatism although the Coalition government really did fumble the bag on austerity (more on that next week). However, fiscal rules are essentially whatever the government wants them to be and bodies such as the OBR which have been established as watchdogs are simply doing what they’ve been told to do by the government. As such, whoever is in power by this time next year needs to stop making excuses by pretending that their hands are tied and instead get on with governing. 

Thanks as ever for reading!

Ben