A new Labour government would strengthen the fiscal watchdog in order to “bring growth and stability back to Britain’s economy”, the party announced today.
Labour leader Keir Starmer and the shadow chancellor Rachel Reeves will pledge legislation to ensure that any significant changes to tax and spending plans will have to be scrutinised by the Office for Budget Responsibility (OBR).
If changes to tax and spending plans had to be made at speed, then the OBR would be allowed to set a date for when it can publish its forecast soon after.
The Labour leadership is increasingly trying to assert its claim to fiscal responsibility and has watered down spending commitments announced when interest rates were lower, such as its £28bn Green Prosperity Plan.
Reeves said “my mission will be to bring stability back to our economy because that is the only way we can bring growth back.”
The announcement comes on the anniversary of Liz Truss’s disastrous mini-budget, when £45m of unfunded tax cuts were announced without any independent scrutiny.
The proposals sent the markets into freefall and forced Truss out of office soon after, making her the UK’s shortest serving prime minister. Gilt yields spiked meaning households coming off fixed-rate mortgages at the time had to pay hundreds of pounds per month more.
“Never again can a Prime Minister or Chancellor be allowed to repeat the disastrous mistakes of last year’s mini-budget,” Reeves said.
Truss came out to defend her proposals earlier this week, arguing the UK economy was in need of her brand of libertarian economics. She also criticised the OBR for the lack of dynamism in its models.
In response to Labour’s announcement, Truss said “it beggars belief that Labour think Britain’s problems will be solved by bigger government and even more powers for quangos.”
In contrast, former chancellor George Osborne, who was responsible for establishing the OBR, said the reforms were “sensible, pragmatic improvements. If the Tories are smart they’ll adopt them.”
Recent reports have suggested that Boris Johnson also considered dumping OBR forecasts ahead of the government’s first budget, an idea that was given short shrift by then Chancellor Sajid Javid. Johnson denies the allegations but Javid resigned as chancellor soon after.
Alongside today’s proposals, Labour also set out a fixed timetable for budgets that would see major fiscal decisions announced by the end of November with a smaller spring update in early March.
“No other G7 country holds two major fiscal events each year. This would provide more economic certainty for individuals and businesses,” Ruth Gregory, deputy chief UK economist at Capital Economics said.
“Labour will ensure stability returns to our economy and on that rock of stability working people will be better off,” Reeves concluded.