David Prosser: The battle for fiscal credibility

Outlook: Governments should retain their duty to set spending priorities and raise taxation

The credit ratings agency Fitch is entitled to its view that Britain's current plan to cut the budget deficit is too vague and too slow. But if Fitch, or any other critic, thinks it is going to get any more clarity from the Government – or the Conservatives, for that matter – on deficit reduction this side of the election, it is living in cloud cuckoo land.

There is, however, one aspect of economic policy on this issue that we can judge Labour and the Tories on today. Keen to impress on both the markets and the electorate that they are serious about tackling the deficit, both parties have attempted to provide a backstop to their deficit reduction policies.

Labour has made its promise to halve the budget deficit within four years a legal requirement on the Government. The Tories, meanwhile, plan to set up an Office for Budget Responsibility, to be run by the former Treasury adviser Sir Alan Budd, who has promised to "keep the Chancellor's feet to the fire". The OBR's role would be to deliver an independent verdict on whether a Conservative government was keeping its word on borrowing and spending.

Labour's plan has a veneer of credibility. A legal requirement might be considered a tighter corset within which to operate than a system where an independent body simply lobs criticism at a government with which it is unimpressed (and the OBR would have no power to dictate or overturn Treasury policy).

Still, you can imagine all sorts of wriggle room with such a law. And in any case, what would the sanctions be if a Labour government broke its own law? It is difficult to imagine Alistair Darling being dragged out of Number 11 in chains for cutting the deficit by only a third, say.

An Office for Budget Responsibility, on the other hand, could be a real thorn in the side of any government with which it fell out. Having set up such a body with a mandate to hold the Government to account on reducing the deficit, Chancellor Osborne (or Clark, if the Westminster rumour-mongers are to be believed) could hardly ignore its advice.

The OBR, then, is a step in the right direction. And in truth, Labour will likely have to come up with something similar. Its deficit reduction law is no use unless there is a policeman to monitor ministers' compliance and a prosecution service to bring charges should they be necessary. The Treasury cannot be allowed to be a self-regulating authority on this of all issues.

What, though, if we were to go further with the OBR? Imagine, for a moment, that the Conservatives win the election on 6 May. What would be their Bank of England moment – remember how Chancellor Gordon Brown stunned people by handing the Bank independence after Labour won in 1997 – in the days following such a victory?

Handing over a great big slice of fiscal power might be an equivalent gesture. Any democratically elected government should retain its duty and right to set spending priorities and raise taxation in the way it sees fit, but that would not prevent the next administration giving a souped-up OBR power to set borrowing limits within which it had to operate. Not necessarily annual limits on deficits, say, but some sort of programme over the short to medium term.

Chancellor Brown gave the Bank of England its independence in 1997 because he wanted to demonstrate that his Labour government would not be characterised by perceptions of economic incompetence that had dogged predecessors. The Conservatives will not arrive in office with quite so much baggage, but the credibility that handing over some fiscal responsibility would bring might still have its attractions.

If, on the other hand, Labour were to win, might Alistair Darling be persuaded to do something similar? With Gordon Brown in Number 10, rather than Tony Blair, the Chancellor may find it harder to persuade his boss to give up further tools of economic management. Doing so, however, might go some way towards giving the markets the instant reassurance they will want that a Labour government can get on top of the nation's finances. Even Fitch might be satisfied.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor