Britain, given its need to borrow and its dependence on overseas lenders, needs a fiscal framework to assure the markets it operates within credible limits. But two reforms are an imperative. The OBR, as Andy Haldane, former chief economist of the Bank of England, has written, is currently “prosecutor, judge and jury” of economic and fiscal policy, and we are witnessing the baleful results. Instead, he writes, the Treasury should take back its “brain” and produce the economic forecasts itself. The whole process should be more private – as it used to be. The OBR should then adjudicate the results as an independent second “pair of eyes”, as in other countries. And instead of one target for debt in five years’ time, there should be tolerance bands for debt levels beyond five years within which no corrective action is needed, backed up by accompanying tolerance bands of potential “fiscal headroom”. The government would not only retain fiscal credibility but also the scope to borrow in order to invest, and the vital discretion to react to shocks.
