Will UK Chancellor of the Exchequer Rushi Sunak’s budget be (yet) another comedy show?
Ahead of UK Chancellor of the Exchequer Rishi Sunak’s budget statement on 27 October, the New Economics Foundation (NEF) has released a report about “rules” that have governed British fiscal policies for almost 30 years.
It’s brief and has useful charts. There’s a list of supporting research.
But – particularly for those who find economics is a bit of a joke – the NEF report has plenty of amusing content.
It observes that the UK has launched no less than six different sets of fiscal rules – which include targets for the debt/GDP and budget/deficit ratios – since the 1990s.
“In the last decade, a new set of rules has, on average, lasted for just two years,” the report says. “At best, such a frequent turnover of rules represents a gross design failure to build in even the minimum required flexibility to manage a single business cycle – let alone multiple booms and busts. At worst, such turnover is reflective of deliberate reengineering for political advantage; such as by a chancellor seeking to outmanoeuvre their opposite number, a permanent secretary seeking to constrain policy from their ministers, or for interdepartmental advantage between the Treasury and other parts of Whitehall.”
The NEF records that people interviewed for the report — including some directly involved in the setting of fiscal rules at the highest level – admitted that all these political dynamics “had some bearing on the process”. You don’t say?
The cavalier approach has increased since 2010. That year it was declared that Britain’s current budget deficit would be eliminated by the 2015/16. In fact, it took twice as long to reach that goal. British public sector net borrowing in 2019/20 was 48 per cent of GDP, nearly twice the level it was supposed to be.
This ludicrous record of getting it wrong by miles drew a snort of contempt from the report’s authors.
“UK fiscal rules have proven neither credible nor enforceable, have failed when faced with economic shocks, and lack effective mechanisms to compel compliance,” it says. “Chancellors have simply changed their fiscal rules when they became too hard to meet, leaving a supposed cornerstone of hardnosed macroeconomic policymaking vulnerable to political gaming and appropriation.”
And yet, years of distortion that amounts to misleading Britain’s parliament and voters on a scale that is almost unique has failed to draw condemnation from those supposed to set standards in macroeconomics.
The IMF – which has spent decades lecturing low-income nations about what’s right and wrong – is silent about the abuses committed by the finance ministry of one of its founding members. The academy, at least in the UK, has little to say. And where are the words of wisdom from Nobel Prize winners when you need them?
Mr Sunak will solemnly declare to the House of Commons the seriousness of his plan for the UK. It’ll include fiscal targets and rules that will be declared to be unbreakable. Sunak will be listened to respectfully and cheered heartily by his side when he finishes.
But – if Britain’s record for setting and breaking fiscal rules is anything to go by – a shout of laughter would probably be more appropriate.