The Institute for Fiscal Studies has generally welcomed the new government’s ‘fiscal lock’ saying it is ‘broadly sensible but largely performative’.
Following last week’s King’s Speech, the Budget Responsibility Bill has been introduced to Parliament and is due to have its second reading on 30 July. Related draft text to be included in a revised Charter for Budget Responsibility has also been published.
The Bill, which is expected to be certified as a Money Bill (and so cannot be amended by the House of Lords), contains just two clauses. It will require the Treasury to commission an economic and fiscal forecast from the Office for Budget Responsibility (OBR) ahead of a minister making significant fiscal announcements to the House of Commons. If the Treasury makes no such request, and the OBR believes that the measure is fiscally significant, the OBR will automatically be required to produce assessments of fiscally significant measures as soon as reasonably practicable.
A measure is ‘fiscally significant’ if it (or in combination with other measures) has a costing attached to it that exceeds a specified percentage of GDP for a particular period (temporary measures, or those responding to an emergency, are excluded). The Treasury’s accompanying press release summarises this to mean announcements of major permanent tax or spending commitments over the course of a single financial year worth more than 1% of UK GDP (around £30bn).
Ben Zaranko, Senior Research Economist at the IFS, commented that this was ‘a rather theatrical way of promising not to do another mini-Budget – or at least not to do another mini-Budget without some accompanying independent analysis from the Office for Budget Responsibility.’
‘This Chancellor could make and keep to that promise without any need for primary legislation, and some future Chancellor determined to misbehave could almost certainly find a way to get around it, but it nonetheless serves as a welcome commitment to fiscal transparency,’ Zaranko said.
The Institute for Fiscal Studies has generally welcomed the new government’s ‘fiscal lock’ saying it is ‘broadly sensible but largely performative’.
Following last week’s King’s Speech, the Budget Responsibility Bill has been introduced to Parliament and is due to have its second reading on 30 July. Related draft text to be included in a revised Charter for Budget Responsibility has also been published.
The Bill, which is expected to be certified as a Money Bill (and so cannot be amended by the House of Lords), contains just two clauses. It will require the Treasury to commission an economic and fiscal forecast from the Office for Budget Responsibility (OBR) ahead of a minister making significant fiscal announcements to the House of Commons. If the Treasury makes no such request, and the OBR believes that the measure is fiscally significant, the OBR will automatically be required to produce assessments of fiscally significant measures as soon as reasonably practicable.
A measure is ‘fiscally significant’ if it (or in combination with other measures) has a costing attached to it that exceeds a specified percentage of GDP for a particular period (temporary measures, or those responding to an emergency, are excluded). The Treasury’s accompanying press release summarises this to mean announcements of major permanent tax or spending commitments over the course of a single financial year worth more than 1% of UK GDP (around £30bn).
Ben Zaranko, Senior Research Economist at the IFS, commented that this was ‘a rather theatrical way of promising not to do another mini-Budget – or at least not to do another mini-Budget without some accompanying independent analysis from the Office for Budget Responsibility.’
‘This Chancellor could make and keep to that promise without any need for primary legislation, and some future Chancellor determined to misbehave could almost certainly find a way to get around it, but it nonetheless serves as a welcome commitment to fiscal transparency,’ Zaranko said.
