Wednesday 10 June 2015

The false god of the OBR


I really don't get George Osborne. He is lauded nowadays as the great political genius and strategist, as well as a canny Chancellor.

In reality his 'Plan A' was no mathc for the markets of 2011 and the Euro crisis, he quickly switched to more or less following Ed Balls' plans for the rest of the Parliament. This was a wise choice, but highlights again how little real difference there is in the managerialist approaches of our political parties.

Now, with a Tory majority and 'long-term economic plan', he is considering scrapping the Bank levy and writing into law that Budgets must be balanced in times of plenty.

I am vehemently against the reduction in the Bank Levy, this has done a good job of concentrating bankers minds on not over-stretching their balance sheets - the single main cause of woe in 2007/9. Also how stupid to cut taxes for Bankers as a priority, poor politics on the lines of the 2012 budget omnishambles. If corrupted HSBC would rather be in China then good riddance to it, let's see how the execs due against the firing squads when the Politicians turn against them there. You only have to read my post of Monday this week to understand how dangerous the business environment is in China.

The worst call of all though is this 'fix the roof whilst the sun is shining.' On one level I agree with it strongly - the national debt is unsustainable and a multi-decade effort of restraint is called for, we are nearly 10 years into the first one and the job is less than 40% done.

However, to say the OBR should be the repository of judgement as to when the economy should be balanced or not is just silly. The OBR got growth targets wrong in almost every year of the last Government. Some years over-estimating and some years under. Markets move very quickly - not at the moment heightened tension as Grexit is now 50/50 and China rapidly slows.

To accredit an independent body to regulate a Government's finances is bizarre, more so when it is one that has a brief and not very glorious history. Why not ask the Bank of England, or the IMF?

When a crisis hits all such planning goes out the window. Most economists and the Government did not see 2008 coming. They wont see 2015, 16 or 19 coming either, its the way of the market. To try bind them in such a way is illogical.

People in the UK voted, just, for more austerity. The Government can enact its will for 5 years. If the people then vote for the nutters who want to splurge, so be it. Trying to legislate in this way is anti-democratic.

15 comments:

hovis said...

Osbourne is highly overrated - he does enough for his own position - but agreat chancellor or a statesman? Never - a second rater.

The raising of OBR is at best just apoply to pretend there is an economic law that 'must be done' - with appropriate moralistic finger wagging attached. the factr is that neither OBR, BoE or the IMF have a clue. - look at the the IMF's failed policy prescriptpion in Greece, teh BoE's failure pre crisis and of course the OBR's short comings you have highlighted. It's worth remembering that DSGE models may economics bodies have favoured have a predictive capability of .. around 2%. So like much in life - the Emperor has no clothes and our lives are goverened by such nonsense.

Jan said...

Agree you can plan all you like but when there's a crisis it all goes out of the window. Agree the OBR is superfluous and probably not as independent as they want us to think. What does the commons account committee do if not scrutinise the government's expenditure?

If the government wants to raise some cash why not issue some bonds like the recent OAP National Savings bond which was very popular and sold out pretty quickly but this time make them with no age restrictions. Then they can carry on with their tax reductions/simplifications without too much austerity and stop the whinging from the left.

dearieme said...

This seems to be a stupid scheme for making Labour more electable, since people might assume that Osborne's gizmo will stop the bastards misbehaving next time. Folly!

andrew said...

I want a 'nice chap' law (*).
People who are not nice should be fined for every transgression.
If a repeat offender, then sent to the US and prosecuted for something under their laws and imprisoned forever.
There should be an unelected committee of people just like me who decide what is - or is not nice.

(*) please take chap to be non-gender and non-species specific

andrew said...


The entire thing make me feel slightly nauseous.
The cons say they are pro a small state (as am I).
Do they not realise that adding more rules inevitably makes the reach and thus the size of the state ever larger.
I would like to think they mean well, but whatever happened to the old conservative (and liberal) tradition of letting people get on with things until it becomes clear rules are really really needed.

Managerialism is slowly rotting our country from within and it is in no-ones clear interest to change things.

Nick Drew said...

andrew, the way the world works, we have a Nice Chap law already

if, for example, you are Boris, you can get away with absolutely anything (that's, anything)

"yes, but he's a good chap" has long been the only defence that really matters - in fact, it stops prosecutions ever being brought

I learned long, long ago - as a novice borough councillor - that there was no point trying to have a go at a really popular committee chairman, however useless or (very occasionally) bent he was

however, there were a couple of ugly ones and they were easy game

DJK said...

It was the Blair govt that started the absurd fashion for putting political objectives into law (50% greenhouse gas reduction, <10% of children in poverty, balanced budget, 0.7% of gdp on aid, etc, etc), pretending to bind successor governments. But it is the heir to Blair that has been the most enthusiastic about it.

Agree about the OBR --- and Osborne. Both highly over-rated.

Lord Blagger said...

I am vehemently against the reduction in the Bank Levy, this has done a good job of concentrating bankers minds on not over-stretching their balance sheets - the single main cause of woe in 2007/9.

==========

Bizarre. If you want to deal with the gearing, increase the amount of capital required. ie. The ratios come down.

Taxing capital has the effect of reducing the amount of lending, not the risk that banks take.

Lord Blagger said...

On one level I agree with it strongly - the national debt is unsustainable and a multi-decade effort of restraint is called for, we are nearly 10 years into the first one and the job is less than 40% done.

=======

Which debts? THe 1.415 trillion borrowing or the 9.2 trillion pension debt?

CityUnslicker said...

dearime - indeed, the law of unintended consequences.

ND - see Harry Redknapp, bang to rights for taking bungs, huge and well covered high court press - jury let him off as 'he's a good bloke and we all know he is dodgy anyway'

so your right, ANYTHING.

Blue Eyes said...

CU is now against cuts in banking taxes *and* corporate taxes. Is this part of some clever plan to have this island to himself?

As for fiscal probity laws, it is arguably pointless but harmless. Parliament is sovereign. A government which wants to run a deficit will simply ignore the protestations of the OBR or repeal the relevant legislation in a Finance bill.

However, such legislation is symbolic. It tells Parliament and the world that there has to be a positive decision to loosen up the public finances. As such it is similar to giving "independence" to the Bank of England on base-rate-setting: it could be taken away at any point, but only after at least a degree of discussion, rather than but simple ignorance by a lazy or self-interested chancellor.

It seems to me like a small net positive, and at worst a bit of posturing. Why get angry about it?

And please for the umpteenth bloomin' time, people, there is - even in a Tory majority world - no "u" in Osborne.

Peter S said...

ND: "yes, but he's a good chap" has long been the only defence that really matters - in fact, it stops prosecutions ever being brought.

I suppose Blair's the exception that proves the rule here (not nice but still no prosecutions).

John miller said...

I'm all for Governments binding themselves legally. When they break the law we can fine the Government a trillion pounds al solve all our money problems.

Oh, wait...

CityUnslicker said...

BE - We could cut the deficits and taxes at the same time, as Laffer etc I agree with but really, fuck the banks - they are responsible for so much of our disaster. I have tin ear sympathy with their whining.

Corporate taxes are already low, I merely don't get why being even lower will really turn the dial much more as compared to other things we could do.

If we are going to cut tax it should be the income tax from 20p to 19p. The people will spend the money and boost the economy more effectively than the corporates or banks.

Blue Eyes said...

Yes, what did finance do for us?

On tax, I tend to prefer supply-side reductions over demand-side.