The 2015 Autumn Statement saw George Osborne dramatically soften the blow facing Whitehall departments. Cuts are to be a quarter of the size planned during the pre-election debates, despite the fact nothing fundamental has altered in the economy. Gavin Kelly writes that this highlights a “candour deficit” among political parties, where they feel they can get away with making implausible fiscal promises they have little intention of keeping, or saying nothing at all, when tactically convenient.
There was always something highly implausible about the pre-election fiscal debate, and that implausibility infected all the parties. No one was immune. It certainly applied to the Chancellor’s cocktail of claims: enormous future cuts to departmental spending, unspecified measures to reduce welfare, and the commitment to large tax-cuts and the idea that tax-rises wouldn’t contribute to deficit reduction. The whole debate failed the sniff test. Hence the candour deficit.
In this year’s Autumn Statement that pre-election apparent sleight of hand came back into view as we saw George Osborne dramatically soften the blow facing Whitehall departments. The planned cuts to day to day spending on public services have been wound down from over £40bn (in 2018/19) as set out in the spring to around £10bn (in 2019/20) now. These cuts are to be a quarter of the size planned just seven months ago. Which isn’t to downplay the severe consequences of what has been announced: it’s still eye-watering. If you are working in local government facing draconian cuts then being told it could have been even worse will be of little comfort. But look at the overall reduction in public service cuts and it’s clear: things just got more plausible.
Indeed the plans now look more like what we might have expected to see had Labour won power. Mr Osborne has confirmed in his Summer Budget and then Autumn Statement not just his political pragmatism but also his openness to ideas from a variety of sources: he’ll steal ideas from both Ed Miliband or Ed Balls.
Yet for all these changes nothing fundamental has altered in the economy since last May, or indeed the Summer Budget. The growth assumptions have barely shifted. The most important change has been a reduction in expected long term interest rates which has been of significant help to the Chancellor. The improved fiscal figures (read Chris Giles, Flip Chart Rick and the Resolution Foundation for excellent explanations) are accounted for by some stealthy tax-rises — again, as predicted pre-election — and several OBR modelling adjustments that have delivered the Chancellor a windfall.
The OBR must, of course, answer for the reasonableness of any changes in their modelling assumptions. But what about the wider question of accountability: are there any lessons arising from this pre-and post-election fiscal shift that we should consider? Or is this purely a case of good economic fortune landing in Mr Osborne’s lap?
Some will probably be minded to use the jumpiness of these spending plans, together with the modelling revisions, to have a go at the OBR. Dismiss out of hand any notion that they came up with convenient forecasts to help the Chancellor; no-one who has spent five minutes with Mr Chote would take this seriously. Nonetheless, some will say that the OBR was put on earth to improve the quality of our fiscal debate and bring more honesty to these discussions; and on that front we’re still not in great shape. If you were being a bit unfair you could argue that there is something about the air of authority that the OBR exudes, and the calm manner in which Mr Chote forensically sets out the numbers, that infuses the whole public finance process with an air of credibility — perhaps more than it merits. Surely, you can almost hear people think, all these numbers must be at least roughly right given all those impressive charts that seem to back them up?
But to point a finger at the OBR is far wide of the mark. They have gone from nothing to being an indispensable national institution in five years, improving the quality of debate, and proving themselves willing to use media-grabbing metaphors (the ‘roller-coaster’) to draw attention to outlandish commitments (and they’ve done on it modest resources to boot). No, the candour deficit is squarely about political parties and the extent to which they feel they can get away with making implausible promises they have little intention of keeping, or saying nothing at all, when tactically convenient. The OBR can’t stop this; it will never be able to prevent the chancellor of the day from setting HMT’s ‘spending baseline’ for partisan advantage.
Ultimately it is for the media to hold parties to account for their fiscal manoeuvring as well as for pre-election vagueness on key policy issues (think back to the election campaign and the lack of any sustained questioning of ministers about their plans for tax-credits, or indeed Labour’s painful contortions on borrowing to invest). But there are lessons for the rest of us in how we interpret what the OBR and other forecasters say. All those who follow the twists and turns of these debates — most obviously the reporting media but also commentators, think-tanks and others — should be even less credulous about how fiscal forecasts are generated, used and sometimes abused in debate. Those scrutinising fiscal numbers need to constantly remind ourselves about the curse of false precision. Fiscal projections are always and everywhere wrong — the only question is by how much. Which means we need to think of better ways of demonstrating and publicising the sensitivity of these numbers to small changes in a number of key assumptions (and to be fair the OBR already produces some of these numbers).
The OBR could also use their authority to make it a bit more awkward for politicians to play games. They might think about how to highlight even more dramatically — think flashing neon lights — the extent to which the spending plans of the government of the day have jumped around from one fiscal event to the next. They could do more to condition pre-election fiscal debates by showing (as the IFS have done) the extent to which, historically, plans have changed before and after elections. And, as a vital benchmark, we should be shown projections that aren’t based on the government’s stated spending plans, but other plausible scenarios based on historical experience.
Elections are about many things — but the parties’ plans for spending and taxing will always be at the heart of them. It matters if voters are told one thing and something else very different one occurs. Sometimes that will inevitably happen due to changing circumstances. But politicians from all parties will always duck and weave; we could do a better job of forcing more plausible answers from them. The candour deficit won’t have disappeared by 2020, but we could chip away at it.
___
Please note: the above article was originally posted on Gavin’s personal blog and is reposted here with permission. Image credit: Ninian Reid CC BY 2.0
Gavin Kelly is the CEO of the Resolution Trust, and the former Director of the Resolution Foundation. He tweets as @GavinJKelly1
1 Comments