David Prosser: Credibility means giving up the option of cooking the books

The lesson of the eurozone's sovereign debt crisis has been that the merest hint of equivocation on fiscal policy leaves a country open to attack
Click to follow
The Independent Online

He may have been Chancellor for less than a week, but it seems George Osborne is learning the ways of Whitehall very quickly. The launch of the Office of Budget Responsibility yesterday is a move straight out of a Yes Minister script. Minister: "We need to cut down on waste and start scrapping the quangos". Permanent Secretary: "Yes, Minister – we'll get a new quango working on that immediately."

Though it will suit the Chancellor to have his first big moment given the dramatic treatment, it is not the Conservatives' Bank of England moment. When Gordon Brown gave the Bank independence to conduct monetary policy in 1997, there was no doubt he was giving up real power. Mr Osborne's OBR, on the other hand, won't be in control of fiscal policy. And though it will be responsible for producing the economic forecasts to which the Government will work, the civil servants doing the number-crunching may even be the same people who came up with the Treasury's figures for the previous administration.

But then the new Government does not need to make quite such a bold statement as its predecessor. On finally coming to power 13 years ago, Mr Brown was obsessed with the need to convince the world that his Labour government would not be characterised by the same fiscal indiscipline ascribed to those of the past. The Tories, by contrast, do not arrive in office with this sort of baggage.

What Mr Osborne is required to do, however, is convince the markets and the credit ratings agencies, without whom Britain will no longer be able to continue financing the deficits it will run throughout this Parliament, that his plans to cut borrowing are credible.

This challenge is now tougher for two reasons. First, the new Chancellor has just been through an election campaign during which it was blindingly obvious that he was not prepared to spell out the detail of how he planned to achieve his ambitious debt reduction targets. Second, the lesson of the sovereign debt crisis in the eurozone has been that even the merest hint of equivocation on fiscal policy – let alone the fictional accounting and forecasting pioneered in Athens – leaves a country open to attack from speculators eager to encourage crises of confidence.

In this context, the creation of the OBR, staffed as it will be by highly regarded, independent economists such as Sir Alan Budd, makes a great deal of sense. It will not take the politics out of fiscal policy – you'll still have the Treasury to blame for tax rises and spending cuts – but at least there will be an independent and authoritative arbiter of whether fiscal policy as a whole is on target to deliver the Chancellor's promises. And while the OBR may get its forecasts just as wrong as the Treasury has done in the past – though its record, leaving aside the all-bets-are-off impact of the financial crisis of the past three years, was not so bad under Labour – at least there will be no suspicion that the books are being cooked for political reasons.

In fact, you might see the OBR as the natural extension of the policies of Gordon Brown. Having given up his monetary policy tools, Mr Brown also boxed himself in on fiscal policy, by setting a series of rules about taxation, spending and borrowing that he could not breach without great political embarrassment. The only thing missing was an officially endorsed independent judge of whether the rules had been met, which enabled Labour chancellors to shift the goalposts.

In the end, of course, the rules were demolished by the credit crisis – and that, too, is a lesson that Mr Osborne should heed. The OBR is there to get on the Chancellor's case, but there may come a time when the Government feels that it just has no choice but to ignore its strictures.

That, however, would be in extremis. In more ordinary times, the creation of the OBR, at the very least, makes a statement. It is that this is a government which accepts that politicians are no longer trusted in what they say about bringing down borrowing. Sir Alan's job will be to keep the Chancellor on the straight and narrow, and – even more importantly – to reassure anxious lenders to Britain that they do not have to take a leap of faith with a politician.



Sir Stelios's easyJet campaign is grounded

Thanks for nothing may well be the response of Sir Stelios Haji-Ioannou to the resounding lack of support that he has received from fellow shareholders in easyJet since stepping down from the budget airline's board late on Friday afternoon. Standard Life, the biggest shareholder in easyJet after Sir Stelios and his family, publicly backed the company yesterday, rather than the stance its founder has adopted. Other shareholders, anonymously, expressed similar views in the weekend press, and the analyst community has not been entirely helpful either.

The biggest problem for Sir Stelios is that the position of principle he has taken in stepping down from the board in order to campaign for a change of business strategy is undermined by his long record of support for that same strategy. He appears to have only taken exception to the management's decisions very recently.

Nor has Sir Stelios's personal animosity towards Andy Harrison, the departing chief executive of easyJet, done him any favours. Whatever one thinks of Mr Harrison's performance – and opinions differ – the sort of attacks on him that have appeared in almost every newspaper over the past fortnight, attributed to "sources close to Sir Stelios", have just been unseemly.

There are all sorts of matters at stake bubbling under the surface in this argument. But it is clear that having founded this business and maintained such a close association with it post-flotation, Sir Stelios feels deeply resentful at no longer being able to call the shots. Sadly for him, the likely outcome of the row is a painful reminder that, these days, he is just another shareholder.

Comments