We should be wary of a fiscal technocracy

In what isn’t a terribly crowded field, the creation of the Office for Budget Responsibility is widely viewed as one of the more successful fiscal policy innovations of recent years. The OBR produces independent forecasts for the economy and public finances, assesses the government’s performance against its fiscal targets and, more generally, prevents the Treasury from marking its own homework. It is a good thing.

Perhaps in light of that success, there has been a flurry of proposals for extensions to the OBR’s responsibilities and remit. Rachel Reeves thinks it should have sole responsibility for deciding when the fiscal rules can be changed or suspended. A team of economists at the Institute for Government agree.

Others go much further. Economists at the (left-leaning) New Economics Foundation and at the (more centrist) Social Market Foundation argue that we should make fiscal policy more like monetary policy and create a new independent committee of technocrats within the OBR to decide how much the government ought to be borrowing.

All these proposals envisage a greater role for technocrats in guiding UK fiscal policy. The implicit assumption in each case seems to be that there is a “right” technical answer that elected politicians are, for whatever reason, unlikely to reach; hence the need to delegate to technocrats.

Therein lies the rub. As a proud fiscal wonk myself, I am in favour of maximum use of independent expertise, but I recognise that fiscal policy is not, and cannot be, a purely technical exercise. Decisions about tax, spending and borrowing are inherently political. Even questions that sound as though they ought to have a “right” answer are open to different, politically contentious interpretations. We should be highly cautious about moving towards a more powerful fiscal technocracy.

Consider first the Reeves proposal, outlined in her recent Mais lecture. The starting point is the entirely reasonable (and entirely correct) observation that fiscal rules have been adopted and discarded in the UK with near-reckless abandon in recent years. To enhance the stability and longevity of the framework, Reeves has promised to suspend her fiscal rules if — and only if — the OBR declares the UK to be in an economic crisis.

But there is no universally agreed definition of an economic crisis. It is hard, if not impossible, to write down a pre-agreed “escape clause” that is suitable for all scenarios. Before he took over at the OBR, Richard Hughes was one of a team of authors at the Resolution Foundation who argued that the fiscal rules should be suspended when interest rates are close to zero and there is considerable spare capacity in the economy. Yet an escape clause couched in these terms wouldn’t have applied during the energy price shock of autumn 2022, when interest rates were above zero and rising. On the face of it, that would have left the government bound by its fiscal rules and unable to borrow to fund its package of energy subsidies for businesses, households and public services.

That’s fine, you might think: in such a scenario, the OBR could exercise some common sense and declare a “crisis” even if its specified criteria haven’t been met. It certainly would come under pressure to do so. But introducing some element of discretion opens the door to cases that are less clear cut and more obviously political. One could imagine the OBR coming under pressure to suspend the fiscal rules in the face of a “climate emergency”, for instance. And if the government reserved the right to override the OBR’s judgment and decide for itself when a crisis had come along, that would leave us close to where we started and rather defeats the point.

Some of the other, more radical, proposals would see the OBR take on still more responsibility. After all, if we’re comfortable with technocrats at the Bank of England setting interest rates, should we also not be comfortable with an independent “fiscal policy committee” setting a target range for government borrowing? The technocrats wouldn’t decide everything: politicians would be responsible for choosing a package of tax and spending measures consistent with the target. If told they ought to be borrowing less, for example, the elected government could decide whether to raise taxes or cut spending.

The problem with this argument is that the question of how much to borrow is bound up with deeper, more political, questions around intergenerational equity and how much debt we ought to leave for the next generation. Imagine a world in which the UK discovers an enormous new North Sea oilfield (or some carbon-neutral alternative). The proceeds could be used to increase government spending, to cut taxes, to reduce the national debt or to set up a sovereign wealth fund designed to benefit future generations. To decide how much to borrow is, in effect, to choose between these options; something that shouldn’t be left entirely to the pointy-headed experts.

The UK’s fiscal policy framework is certainly far from perfect. Many failures of recent decades have, indeed, been political failures. Ultimately, though, for decisions over tax, spending and borrowing to have democratic legitimacy, elected politicians need to be at the heart of making them. Whether or not you agreed with George Osborne’s austerity in the 2010s or Rishi Sunak’s generosity through

Covid, those were not the sort of decisions that could be anything other than political. The OBR has brought discipline and transparency to the fiscal policymaking process, but it is possible to have too much of a good thing. Choices over how much to tax, spend and borrow are not narrow, technical questions. They are inescapably political. Elected politicians should be responsible for making them.

This article was first published in The Times, and is reproduced here with kind permission.