Thursday’s announcement on the capping of energy prices to be faced by households and businesses was perhaps the biggest single fiscal event of my lifetime. If that sounds hyperbolic, try to think of another single statement committing what could turn out to be £150 billion of spending over the subsequent year or two. Or such an extraordinary intervention in setting prices. For every pound you or I spend on our energy bill in the coming year, the government, the taxpayer, will pay an additional 75p.
All the more remarkable, then, that neither in the prime minister’s statement to the House, nor in supporting documents, is there any official estimate of the cost. The fact that the cost is most uncertain, depending as it will on the path of future energy costs, is all the more reason to publish underlying analysis, including estimates under different scenarios for how energy prices might evolve.
One also would expect some official analysis of the effects on household incomes. We may have been without a functioning prime minister over the summer, but there can be no doubt that this analysis was carried out by the civil service. It exists. It should have been published.
The uncertainty is not solely about the cost over the next year or two, it extends to uncertainty over how long this subsidy will be in place. If it turns out that this is an entirely one-off, time-limited policy, then my first sentence could, indeed, prove hyperbolic. It will still be a huge intervention, but a one-off £150 billion — if that turns out to be the cost — is rather less important than permanent big changes to tax and spending.
A timetable, an exit strategy, at least a plan to come up with a plan, should have been announced. If such a big, imperfect, expensive, untargeted policy is understandable in face of the present urgent situation, it is not understandable as the default for 2023-24. A year of hard work may not reveal anything better, but that year of hard work to look for something better should be starting right now.
And it is not only the cost and distributional impact of this colossal policy about which we have heard nothing; we also have not seen any official forecasts of the economic and fiscal environment into which this huge grenade has been lobbed. The forecasts published by the Office for Budget Responsibility back in March are now hopelessly out of date. We know that it has new ones, which it is ready to publish, because it has told us so.
In addition, we may get another fiscal event before the actual budget. If we do, the presumption is that this will confirm the new prime minister’s plans to reverse the increases in national insurance contributions and corporation tax announced by Rishi Sunak. If this happens outside of the budget, it seems likely that it, too, will come unaccompanied by new forecasts from the OBR.
In some ways, this is not new. We have got rather too used to big fiscal events without proper costings and forecasts over the past couple of years. Sunak and Boris Johnson responded to Covid and the cost of living crisis — and indeed announced the health and care levy — outside of the normal calendar of budgets and spring statements.
But we should not have to get used to this way of making announcements, free of analysis, costings and forecasts. The whole point of having an independent OBR was to provide trustworthy information on both the costs and impacts of policy, and trustworthy fiscal and economic forecasts. We don’t need a full 300-page document every time the government does something, but transparency surely demands that, at a minimum, we know what government thinks the policy is likely to cost and what its key impacts will be.
The OBR itself was a long-overdue innovation brought in by a Conservative chancellor. It was a reaction against a loss of trust and concerns that forecasts were influenced by politically motivated wishful thinking. It has, of course, attracted its share of criticism for its forecasts not being accurate.
As its first chairman, Sir Robert Chote, so disarmingly warned early in his tenure, all forecasts will be wrong; but it has been invaluable not only in providing honest and independent projections but also in putting far more data and information in the public domain than ever before.
In fact, it has been valuable to chancellors. It removes the suspicion that they are being anything other than open and honest. It increases their credibility. At any moment they may find the scrutiny awkward, but they should welcome its longer-term consequences.
Kwasi Kwarteng and Liz Truss have said they will have a laser-like focus on promoting growth. Good. There is one condition for growth that is of overwhelming importance: political and macroeconomic stability. That comes right at the top of the list of what companies and investors, especially international ones, want to see in a country if they are going to make long-term investments.
Building and maintaining that stability should be the first priority of any government, especially one focused on long-term growth. Recent falls in the value of sterling and increases in the cost of borrowing are warning signs over the costs of recent instability.
Not sacking the longstanding permanent secretary to the Treasury in your first day in office, as Kwarteng did, might have been a good start. Maintaining trust in the capacity, honesty and focus of government is vital. Transparency and openness to scrutiny are crucial aspects of that. They are also relatively costless. It would be foolish, indeed, to abandon them.