A new law to bring economic stability and help protect family finances introduced to the House of Commons following the King’s Speech.
The new law will mean the Office for Budget Responsibility – the independent watchdog for public finances - will be given the power to make an independent assessment of any single major tax and spending announcement, or series of announcements over the course of a single financial year, which make permanent tax or spending commitments worth more than 1.0% of the UK’s GDP, or around £30 billion.
The Budget Responsibility Bill will ensure that any major future fiscal announcement will be subject to an independent assessment, as a form of ‘fiscal lock’.
The Growth plan set out in 2022, which announced £46bn worth of unfunded tax cuts, led to an unprecedented increase in borrowing costs.
Rachel Reeves, Chancellor of the Exchequer, said:
This Government’s defining mission is to deliver economic growth. However, growth can only come through economic stability and a commitment to sound public money so never again can a government play fast and loose with the public finances.
This new law is part of our plan to fix the foundation of our economy so we can rebuild Britain and make every part of the country better off.
Emergency, temporary measures lasting fewer than two years will not require an OBR assessment, such as the response to the Covid-19 pandemic.
If the government wanted to announce fiscally significant measures but did not ask for an OBR forecast, the fiscal lock would be triggered.
The legislation gives the OBR a new power to independently decide to produce a full fiscal forecast or assessment, at the OBR’s discretion, if they judge the lock has been triggered.
The OBR would alert the Treasury Committee in the event of a breach and notify them of their intent to publish an assessment or updated forecast. Any fiscal event accompanied by an OBR forecast in the usual way will not be subject to the lock.
Louise Hellem, Chief Economist, CBI said:
Market stability is a key foundation to enabling economic growth and business investment. Ensuring large changes in tax and spending policy are always subject to an independent assessment by the Office for Budget Responsibility will give businesses and investors additional confidence in the stability of the public finances.
Growth is the urgent business of the day and fixing our economic foundations at home as well as strengthening the UK’s pitch to the world can rapidly shift UK growth and productivity.
