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29 Sep 2022

Economy

In light of the lack of economic forecast from the Office for Budget Responsibility (OBR) accompanying the recent ‘mini-budget’, Ben Clift examines the political challenges facing technocratic economic governance institutions such as the OBR.

Despite announcing the biggest tax cuts for 50 years last week, the Truss government turned down the Office for Budget Responsibility (OBR)’s offer to provide the independent economic forecast and analysis that would typically accompany a budget. Given the scale of last week’s fiscal measures, many have argued this amounts to a deliberate strategy to avoid scrutiny of its claims that tax cuts will boost growth.

The new Chancellor has now promised that an OBR forecast will accompany his Budget Statement in November. But, meanwhile, IFS projections indicate likely breaches of the fiscal rules set out in the UK Charter for Budget Responsibility that pledge to get debt falling,  and which was updated by Rishi Sunak earlier this year. This latest row reveals the tension between organisations such as the OBR – which embody what I refer to as ‘technocratic economic governance’ – and the  more ‘populist’ style of politics that has been prominent in the UK in recent years, which often rejects such expertise as the product of an establishment elite. The mini-budget, for example, was presented as the rejection of ‘Treasury orthodoxy’.

Technocratic economic governance aims to depoliticize policy-making by delegating decisions to independent institutions. Such moves seek to bolster economic credibility, insulating economic policy from the pressures of popular politics. Rather than the normal passions, ideologies and arguments of mass democratic politics, technocratic reason and expert judgement are applied to policy decisions. Technocratic economic governance has dominated economic decision-making since the late twentieth century.

The OBR itself was created in 2010 by the new coalition government to provide independent analysis of the UK’s public finances. The aim was to improve fiscal scrutiny and responsibility, preventing political interference in the presentation of the fiscal position – for example, stopping Chancellors from adopting over-optimistic growth forecasts. Since 2010 the Treasury and Chancellor have been reliant on the OBR’s independent five-year economic forecasts that accompany the Budget Statement and the Spring Statement. In the years following its introduction, both Conservatives and Labour have welcomed the OBR’s independent expert oversight and the imprimatur of fiscal responsibility it delivered.

The justification for technocratic institutions such as the OBR is that they try to secure and strengthen the link between economic policy debate and fact, evidence, and reason. OBR technocrats seek to uphold observance of the UK’s fiscal rules, designed to strengthen UK economic credibility. Unlike the Bank of England, the OBR is not a policy making body, but exists to adjudicate on whether the government of the day is like to adhere to its fiscal mandate and observe its fiscal rules.

Making the case for fact-based economic expertise, the OBR argue that Britain must continue to be ‘held up as an example of best practice’ in economic governance by the OECD and IMF. They combine their core fiscal sustainability remit with advocacy for democratic accountability and independent scrutiny. For example, in 2020 the OBR highlighted Moody’s credit rating agency’s downgrade of the UK’s sovereign creditworthiness, which cited ‘weakening in the UK’s institutions and governance’ as part of its justification. The OBR warn that further democratic deterioration would have adverse economic effects on borrowing costs and fiscal sustainability.

Kwarteng is of course not the first Conservative politician in the UK to doubt the necessity of independent oversight. As Michael Gove famously intoned during the Brexit campaign, the British people have ‘had enough of experts from organisations with acronyms saying that they know what is best and getting it consistently wrong’. Appealing to ‘the people’ and decrying the policy thinking of an out-of-touch ‘establishment’ elite is one of the hallmarks of a populist political approach. This has been coupled with a wider tendency to stretch the norms of parliamentary democracy to at times evade the scrutiny of parliament and the courts.

This kind of political rhetoric and approach places technocratic economic governance institutions like the OBR in a tricky position. There is clearly a tension between ‘technocratic depoliticisation’ and ‘populist repoliticisation’, with societal reaction against the former understood as a powerful driver behind ‘the new populist challenge’.

To critics of technocratic bodies, the querying of the economic wisdom of decisions such as Brexit raises questions about the democratic legitimacy of independent economic expertise.

The new Prime Minister Liz Truss appears to be one such critic. Recent reports suggest that she is especially sceptical of the OBR’s worth. The institution is likely to face further challenges when simmering debates about how to tackle the climate crisis boil over. In this environment, the future of technocratic economic governance is highly uncertain, which could have serious economic implications. Financial markets seek reassurance about the UK’s fiscal sustainability and economic policy stance from independent overseers such as the OBR and the IMF. The absence of that reassurance helps explain the significant adverse movements in government borrowing costs and the value of sterling since the mini-budget. As questions about UK fiscal sustainability are posed increasingly starkly, in declining the input of independent technocratic oversight, the Truss government has struggled to find an alternative means to assuage financial markets.

The OBR’s existence is especially fragile thanks to its constitutional status. Although established by the Budget Responsibility and National Audit Act 2011, any government could choose not to listen to them, or repeal the Act and get rid of the OBR entirely.

As market confidence in the pound and UK credit-worthiness wanes under the fledgling Truss government, UK borrowing costs are rising. These international financial market pressures raise questions about whether this a good time to undermine independent oversight of UK economic and fiscal governance. UK government borrowing is set to rise steeply to fund Truss’s tax cuts. Could the sharp increases in the costs of this borrowing further deteriorate the public finances and erode UK economic credibility? Truss is taking a big risk, as the IMF have pointed out, and the OBR would no doubt tell her if they were allowed to release their forecasts and commentary.

The challenge for self-avowedly apolitical bodies like the OBR is how to navigate the choppy waters of an ever more hostile political environment.

By Ben Clift, Professor of Political Economy at the University of Warwick. 

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