Photo by Kirsty O’Connor / Treasury
With the much-anticipated Budget now less than a day away, Rachel Reeves has found herself caught between an increasingly hostile PLP and a constrained economy. Following the U-turn on income tax it has become painfully evident that the direction of travel has chopped and changed since the rather odd “scene setter” delivered at the Treasury on 4 November. Some of those changes are welcome, like ending the two-child benefit cap, and others less so – like keeping the triple lock on pensions.
Behind all of these changes one can hear the gentle hum of the bond markets and their accomplice, the Office of Budget Responsibility (OBR), goading Labour MPs into fiscal “discipline” and economic conformism. In the 15 years since its inception, the OBR has hardly faced a question from the political class, let alone a challenge. The institution is presented to the public as the neutral and benign technocratic ballast needed to stabilise our ship in turbulent political waters. But among politicians it has now acquired an almost mythic status: it is the guardian of credibility and the anointed litmus test for fiscal responsibility. And last year Labour strengthened it with the Budget Responsibility Act, amid sombre vows never to repeat the economic mismanagement of Liz Truss.
But you cannot understand Britain’s economic malaise without facing that many of our institutions, especially those forming the architecture of austerity, have constrained political ambition and stifled political creativity. Even Andy Haldane – former Chief Economist at the Bank of England has condemned the OBR’s status to be the “judge, jury and prosecutor” of economic policy. Cautious, conservative, pessimistic and betrothed to a Treasury orthodoxy that has almost entirely sought restraint over renewal, the OBR ties the hand of government and arguably depoliticises the most fundamental aspect of our politics: the economy.
If the polls make one thing clear it’s this: the public want radical change and they want it now. Sluggish productivity, increasing unemployment, the housing crisis and exacerbating inequality – not to mention the climate crisis – require radical responses suited for the 21st century. (One shudders to imagine an Atlee government under the OBR.) The government cannot just temper our economic realities – it has to address them. The OBR was born in 2010, out of the climate of political risk-aversion that became ubiquitous in the wake of the 2008 crash. Caution may help to navigate economic crises, but it also limits Britain’s capacity to rebuild after them. The low growth it engenders makes the country more vulnerable to the next crisis. Today’s world is different. Fixing the cost-of-living crisis, building much needed social and council housing and addressing inequality requires an innovative break from establishment economic orthodoxy.
In a markedly different global context, the OBR looks increasingly like a remnant of yesteryear, where austerity was presented as unavoidable. The US and China have embraced industrialisation not witnessed in decades. The EU has recognised the strategic necessity of public investment and long-term planning. Even cautious central banks have begun to acknowledge that supply-side investment is essential to economic resilience. The public want new ideas, and structural solutions: a “political” economy.
Rachel Reeves has an opportunity. By breaking her fiscal rules, and sidelining the OBR, she can repoliticise economics and recapture the nation’s imagination as to what a Labour government can do. For most of the 20th century Labour governments were able to build transparent and rigorous fiscal forecasts without outsourcing its projections to unaccountable non-department bodies. Labour built the NHS, expanded the motorways, and established Sure Start. It is practically impossible to rebuild public services, tackle climate breakdown or generate higher living standards without a state willing to act. But a government constrained by the OBR, can only passively tinker around the edges of an unequal society, not change it. Britain cannot be hemmed in by fiscal architecture built in the aftermath of a single crisis. The future is here. It’s time for the Chancellor to fight for the public, before she loses to the OBR.
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[Further reading: How the OBR became the department of austerity]
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