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Why the Office for Budget Responsibility matters

Stephanie Flanders | 08:42 UK time, Monday, 17 May 2010

It's democracy: but not as we know it. That's been many people's dazed response to the advent of coalition politics in the UK.

Nick Clegg and David CameronOne minute British politics was a battle of competing tribes - the next we had two terribly nice chaps in the garden of No 10, united by their desire to "do the right thing".

For some it will feel like the heart has been sucked out of government. For those of a more technocratic bent, it will be about time. Finally, they will say, we can strip away the fancy ideology and get down to what actually works.

I suspect that many people will feel both: relieved if it means less yah-boo politics, but also disconcerted about where it will lead.

Funnily enough, for anyone wondering what to make of the new politics, the creation today of the Office for Budget Responsibility (OBR) could be an interesting test.

It's no accident that the creation of the OBR will be one of the first acts of this new administration - like Gordon Brown's (then) shocking decision to make the Bank of England independent in the early days of the new Labour government in May 1997.

George OsborneAs a voluntary surrender of executive power, the OBR does not (quite) rank alongside that transfer of power to the Bank. As Mr Osborne has himself said, the analogy is inexact because you can't give an unelected body "independent executive power over the levers of fiscal policy."

The OBR will not set tax rates like the Bank of England sets the bank rate on which every other interest rate in the economy is based.

But make no mistake: like an independent Bank of England, this new institution has the potential to become a hugely powerful force. It will not set the rate of VAT - or spending on the NHS.

But when it comes to budget policy, this government is going to be on a much shorter leash than the one that came before.

Last week we discovered that the new chancellor had, in effect, asked the governor of the Bank of England's permission to go ahead with his plans to cut public spending this year.

Mr Osborne has said all along that he would seek Mervyn King's advice in setting his policy. Once he had got the thumbs up, on Tuesday, the chancellor was keen that the governor should tell us what he thought in his Inflation Report press conference the following day.

As I reported on the day, this was something new. Was it welcome? Again, those of a technocratic bent would say yes. It's been a long time since monetary and fiscal policy were so mutually interdependent. Now more than ever, each lever of macroeconomic policy needs to know exactly what the other is doing.

Then again, no-one ever voted to put Mervyn King in his current post. If last week had not been so full of historic firsts, you might have heard more people questioning whether he should have played such a key role in making this hugely important political call.

We are told that this was a one-off. The governor does not plan to give a running commentary of British fiscal policy. But that is exactly what the new OBR will do.

At least twice a year, this unelected three person body, with its own staff, will publish independent fiscal forecasts around the time of the Budget and pre-Budget report.

Like the Bank, it will be given the government's medium -term target (in this case, for the budget deficit - or surplus rather than inflation). On the basis of its independent forecast, it will then recommend how much policy needs to be tightened or loosened to have a decent chance of meeting that goal.

Yes, the chancellor can ignore this advice. But the point of the exercise is that politically this will be very difficult to do.

Many in the Treasury are nervous of the new regime. Supporters of the OBR will say they have no-one to blame but themselves - or at least their old masters.

The macroeconomic forecasts under Labour were not as bad as they were cracked up to be (in fact they were often better than City predictions). But the revenue and borrowing forecasts in the latter years of the Labour government were objectively atrocious.

The likes of the National Institute of Economic and Social Research and the Institute for Fiscal Studies said they were optimistic at the time - but no-one knew quite how far off the mark they would turn out to be.

True, the financial crisis was exceptional - causing a collapse in revenues from the City that few could have predicted. But tax revenues were being consistently overestimated by Gordon Brown's Treasury, long before Northern Rock.

In the old days, politicians weren't very good at setting interest rates either. This didn't matter so much when inflation was not very high. But in the 1970s and 1980s, it became very important indeed.

Around the world, central banks started to get the power to run monetary policy for themselves. This was not just because they were outside politics, but because the belief they were outside politics actually made it easier for them to do their job: popular expectations of inflation were more likely to stay low.

That is and was a real and tangible benefit to Bank of England independence that Mervyn King is understandably keen to retain.

Now the deficit is public enemy number one, and once again, the argument is that things will be better for everyone - including the elected government - if its freedom of manoeuvre is more tightly constrained.

That is why independent experts like the IFS have cautiously welcomed the idea of an OBR, though they think the details will need to be carefully worked out. But even the greatest fans of this new institution may still stop to ponder what has been lost - and what has been gained.

As with monetary policy, it is possible that the mere fact of being independent will make the OBR's job easier than it was in the past. The long-term cost of servicing the public debt could now be lower, because investors know there is a highly visible independent body overseeing the books.

But the world has not had an enormous amount of experience of these bodies. It is less clear than in the case of monetary policy what the government is getting for its loss of control.

Yes, the OBR will not be politically motivated - or not in the same way as the Treasury might have been in the past. But - as any glance at the record of other forecasters will show - that is no guarantee that they will be right.

Comments

Page 1 of 3

  • Comment number 1.

    Surely the key, and reassuring, word here is "responsibility".

    If the OBR manages to limit the scope for chancellors to manipulate the budget for political ends, in the same way that the BOE sets interest rates, then it is a welcome damper on unnecessary fluctuation.

    We keep hearing that business wants stability and predictability, and this sounds like a step in that direction.

  • Comment number 2.

    Change for the sake of it sounds more like.... The idea does have an attractive sound to it and maybe it is time to have this department, But I don't see it lasting that long or making a difference to the country. This is mainly down to the government lasting more than a few weeks. The speeches and words coming out about now is the time for change and it will all be done, but is change always good?

    I would like to be proved wrong but deep inside I don't think that the parties will get along that well

  • Comment number 3.

    I am less unhappy about politicians changing the yardstick to a metre as they, unlike this new office, are accountable to me, when it comes to telling me whats good for me and how to measure it.

  • Comment number 4.

    I bet they don't stop the cuts (that the ordinary person, not the elites, will suffer from) or the continuation of the heist of money from the public purse to the private sector.

    Democracy? It's an illusion.

  • Comment number 5.

    My concern about this is where this body ends up relative to where it starts. I think having an independant body to monitor and advise on fiscal policy is a really good idea, I certainly would have appreciated an institution like that removing the spin from the election promises.

    But as you point out, they are not elected, and therefore should only ever advise. If they were to be charged with policy setting I'd start to get concerned.

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 7.

    I like the way George Osborne says

    'There will be significant reductions to the costs of quangos and some Whitehall departments'

    on the one hand and with a flourish

    'said the newly formed independent Office for Budget Responsibility would publish economic forecasts'

    So much for cutting costs, does he mean

    a) disband the little clique that used to provide forecasts and make them all redundant

    b) outsource that same clique to a government owned quango

    c) privatise them and give ownership to the head of the favoured group.

    Someone used to provide forecasts for the government, the government will still require forecasts, where is the saving, or is it more likely that there will now be two teams providing forecasts, the external OBR to forecast public finance and an internal one to forecast what the OBR will say.

    Mrs T, when she came to power claimed she was going to quash the quango's, there were a lot more when she left.



  • Comment number 8.

    Anything which prevents a chancellor from placing his own goalposts, then moving them around so that he can say he has met them, has got to be a good thing.

  • Comment number 9.

    'Mr Osborne has said all along that he would seek Mervyn King's advice in setting his policy. Once he had got the thumbs up..........

    The thumbs up to what I wonder. Or do I really. Unless I've got this completely wrong, it was the thumbs up to more quantitative easing.

    Print more money and print it quick, lest our mountain of debt makes us sick.

  • Comment number 10.

    Steph

    I hear that they are going to include the Enron of balance sheet Pensions and PFI debts as well to the debt figures and I welcome that but the real elephant in the room now is can we reduce these levels of debt before the demographic time bomb hits.

    Labour may have now engineered a situation where our children can never earn enough to pay off this debt.

    If they can will their lives be blighted for decades to pay for Labour spending spree?

    If we do not view the national debt against the falling proportion of the population in work and greater numbers of pensioners and school children then we will not deal with this situation properly and leave our kids in the ****.

    I have three children who are just starting out in life their lives could be as debt slaves to pay for Labour economic destruction.

  • Comment number 11.

    The Office of Budgetary Responsibility.
    The Office of Three Choices; more like

    Choice one: Keep on borrowing without cutting expenditure, and end up in a compound debt trap and finally default.

    Choice two: Cut public expenditure like fury and end up with strikes and civil commotion

    Choice three: Print more money to fund Government expenditure short term, whilst slowing reducing expenditure to avoid strikes and civil commotion.


    Politics and economics may one day be considered historic concepts, with mathematics taking over.

    Perhaps we’ll end up voting for mathematicians as opposed to politicians.
    I wonder what that wily old goat Merlin King got planned for us this year.

    Dear Mr King,

    Please can you print some more money for us.

    Love Dave & Nick.

  • Comment number 12.

    I don't understand why we need another quango to oversee budgetary responsibility. Why doesn't the government just give this responsibility to the Office for National Statistics?

    The ONS has already proved itself to be highly effective in bringing both Tory and Labour politicians to heel when they've tried to manipulate statistical data to suit their policies and doctrines, so I can't see why they cannot do the same for the nations finances.

    That said, any body that can get politicians to make policy based on evidence, instead of putting the cart before the horse and looking for evidence to fit their political beliefs and doctrines must be a good thing.

  • Comment number 13.


    There is a fashion for taking the politics out of things by greating agencies. Interest rates are set by the BoE, Food Safety is the resonsibility of the FSA.

    The underlying premise is that these "things" are too important to be left to politicians (or, perhaps, that politicans cannot be trusted with them) and they are best left to the experts.

    Which begs a much bigger question, namely, if all these things are going to be managed by the experts then what are the politicians for?

  • Comment number 14.

    In some respects I see this as a shot across the bows of any future government. Mervyn King stated that he thought the difficult decisions needing to be made by this govt would make them unelectable for a generation. That might have been mitigated by the coalition - spread the blame more widely, and make sure as much as possible is pointed at the previous Labour incumbents. However, if the hands of future Chancellors are tied by a system that actually proves to have worked in the coming five years, the ability of any future Labour govt to start spending recklessly again based on pie-in-the-sky financial estimates would be severely lessened.
    This body is not something that necessarily needs to be democratic - it should be dealing in facts alone. It is the use of this data to inform political or idealogical decisions that needs scrutiny.
    Of course, we are well versed in pushing politically chosen "experts" onto quangos, so an adversarial selection process would be nice rather than relying on cronyism - or the experts need to be seen to be above and beyond reproach.
    Let's just hope they can get it right....

  • Comment number 15.

    I think they no that they must make unpopular cuts and the new body will allow them to divert public anger

  • Comment number 16.

    12. At 10:24am on 17 May 2010, DT_1975 wrote:

    The ONS has already proved itself to be highly effective in bringing both Tory and Labour politicians.

    ========================================================

    Sorry I cant see that how did we get into this massive hole if they did.

    I also want know what the civil service were doing surely it was their job to see that this mess could not be covered up for so long.

    The people in the treasury must have known what was going on.

    They failed in their duty as I see it.

  • Comment number 17.

    Er, have I missed something - who appoints the 3 members of the OBR? Will it not be George and will he not be picking 'men of his ilk'?

    The independence of these quangos depend upon where you sit. For as long as this new government exists, much time and energy will be expended on blaming the previous administration. That is the nature of our blame culture politics.

    And to Portcullis - much of what Labour has spent has been on restoring infrastructure destroyed by the previous administration. Your children and mine are bright and will find a way forward, just the same as we and our parents paid off the debts incurred after 2 world wars - so stop fretting - the kids aren't!

  • Comment number 18.

    `But when it comes to budget policy, this government is going to be on a much shorter leash than the one that came before.'

    `Not 'arf' as dear old Fluff would have once said.

    I think this government is not so much on a monetary short leash but on a choke chain. The deficit and the debt are the principal controlling factors on government in this country. The previous government resolved this obvious tension by ignoring the problem and making the deficit and the debt much, much worse.

    It is a great pity that the reality of the deficit and the debt will become a political as well as an economic reality. I suppose this is inevitable as economics lies at the bottom of politics but the responsibility for the current economic mess has to lie with the utter incompetence of the previous government which promoted the banks, wrecked value adding industry and ran up a significant deficit even before the banks went belly up and had to be rescued by the taxpayer.

    All we can expect now from this coalition government is a workman-like attempt at resolving the prevailing crisis so that it doesn't get any worse in both the short, medium and long-term. Even that simple objective will require massive spending adjustments.

    Now an Office for Budgetary Repsonsibility sounds to me like further employment for the great and good. So it makes me nervous. It might have a value if it is allowed to be independent, but as we know with the Bank's Monetary Committee under the Brown Terror, how independent is independent?

    I feel that once again we have to give Gorgeous George an E for effort. I do warm to Osborne for the fact that he is trying to do something positive in circumstances which I fear may be quite overwhelming. The poem of the boy standing on the burning deck springs to mind. Very character forming indeed as duty calls.

    He will find himself so much more comfortable in his own body if he goes for banking reform and uses his knife on the jugular there in much the same way as he is going to have to do to government spending. Big Government and Big Business need to be brought to heel as at the moment they are crushing the little people.

  • Comment number 19.

    The problem with setting up separate bodies like this is that they are defined to have limited remit. So with hindsight we can see that giving the Bank of England oversight of interest rates was flawed because it was told only to be concerned about comsumer price inflation and therefore ignored the equally dangerous threat of asset price inflation.

    Similarly if the OBR is given the remit to control public sector deficit without reference to the levels of private sector debt, savings and wealth inequality then its recommendations are likely to be flawed.

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    Stephanie so what is the likelyhood of VAT going up to 20% and in the long term is that sustainable?

  • Comment number 22.

    17. At 10:39am on 17 May 2010, dp wrote

    Can you tell me at what future date the UK finances will come back into balance.

    I don't think you understand that if it stretches into the worst period of the demographic time bomb our children will spend most of their lives working to keep other people many of whom spent their money years before via a Labour government

    "so stop fretting - the kids aren't"

    If all else fails blind ignorant faith will do.

    Our kids aren't aware because Labour has been hiding the figures.

  • Comment number 23.

    HOW MUCH IS IT COSTING to set up the Office of Responsible Budgies?

    a) direct costs, staff, premises, web site, stationery, overheads etc
    b) indirect costs involved in all the extra work which providing the Office of Responsible Budgies with copies of the figures

    And, for a bonus point, HOW MUCH IS IT COSTING to re-brand the DCMS back to beinf the DfE??

  • Comment number 24.

    My concern about this is that the Terms of Reference will end up as a one-way-street. The similar proposals to allow local residents the opportunity to veto council tax rises don't allow for residents to increase services if they deem the level inadequate to meet local need, therefore making "easyCouncil" the default position. This new quango will also be able to comment on how to meet the economically suicidal target but not to comment on how suicidal that target may be.

    It will probably end up like the ECB, unable to take the obvious course of action dut to the tightness of its Terms of Reference.

  • Comment number 25.

    Escaping political responsibility for economic management but making sure the 'right' answers are provided. All decisions about public finances are political even when they are portrayed as sound financing. Cutting public expenditure is usually code for changing the beneficiaries and victims of public services and employment.

  • Comment number 26.



    Sidelining the BOE already, George?

    Tsk-tsk.

  • Comment number 27.

    Odd the one of the first new acts of the Government is to create a QUANGO!

    Whilst on one hand it is useful to know that politicians are less able to 'massage' the economic figures than before there are more important issues that need tackling in British Society

    Social Care - Where Politics Meets Reality - http://wp.me/pRHY4-12

  • Comment number 28.

    The most important issue facing the Governor of the Bank of England and The Office of Budget Responsibility is this:

    How can we get away with printing more money to solve the debt problem whist ensuring the following:

    1) Anyone on a fixed income doesn’t realise that they are losing out.

    2) Anyone who’s saved up any money, doesn’t realise that it was pointless.

    3) And last but by no means least, that we all don’t realise that the great over hang of public and private debt is being spread around everyone via inflation.

    I reckon they’ll announce more QE under the guise of an ‘economic stimulus’.

    And providing you don’t think devaluing the currency is a ‘currency crisis’, there won’t be one.

    We’re all just going to end up poorer that’s all.

    Look on the bright side, at least we’re not Germany, they did everything right, and still have to pick up the bill for those who didn’t.

    Actually thinking about it, why don’t we just ask the Germans to pay, everyone else is.

  • Comment number 29.

    Some good points set out which I was thinking about.
    who selects the 3 people? Would this be a Britain has financial talent contest? Or boys from Eton?
    How much would these experts cost? A civil servants wage or the best the 'market' can afford?
    A government office with 3 people only? More like a office block, again in central London, with a staff of around 100.
    And how long would they need before they issue a report of around 500 pages to press conference?

    call my cynical but these points do matter these days, after all I am being told I voted for this.

  • Comment number 30.

    Oh dear it looks suspiciously like the use of private consultants so beloved of the (until the elections) Lib Dem Tory coalition council I work for. Thousands are wasted on paying these people to make decisions that senior managers are paid to make, only to find that those decisions are strangely similar to the noises the senior managers have been making. Really George if you don't want the job, you'll find there is a queue of ELECTED people prepared to make the decisions people want.

  • Comment number 31.

    Was it really wise to make the central bank independent - and to put the control of our money supply in the hands of unelected officials? Asset price inflation caused by low interest rates paid huge bonuses for the bankers. Independent? I think not. Maybe the central bank should rather advise on rates, and let the government decide. Or better still, let the market decide?

  • Comment number 32.

    21 Galaxy-man

    There is a strong likelihood that VAT will increase to at least 20% in the not too distant future.

    The European norm is around 19% to 20% except Hungary where VAT is 25% no doubt due to their fiscal crisis.

    The struggle in my view will not be so much about by how much the standard rate goes up but whether or not VAT is extended onto zero rated merchandise such as food and children's clothes among others. In many EU countries VAT is levied on food at variable levels.

    I am afraid the nature of the fiscal deficit and debt left by the New Labour government will predicate extensive tax increases plus extensive spending cuts. Not good: but that appears to be the price of indulgent state spending. We will all be Greek in the near future.

    So for what we are about to receive may the good Lord make us truly thankful.

  • Comment number 33.

    It's very Sir Humphrey...

    "You want to cut costs, Chancellor? Why, of course. We will set up a new department to deal with it straight away..."

    And in 2 months time we will be told about savings at the treasury with staff being made redundant...and then (quietly) redeployed to the OBR.

  • Comment number 34.

    Stephanie,

    Isn't the OBR akin to the US Office of Budget Management. Could you please contrast and compare while commenting on effectivreness of US OBM.

  • Comment number 35.

    Interesting article, as always with the BBC leaning over backwards to make no statement that could be considered an opinion of your own. But I think it omits two key points:

    (1) I don't think this government are as concerned with the constraints on their own administration as with those applied to the next one.

    I suspect that the Tories have had enough of fixing the problems caused by an overspending socialist administration and having the issue spun to death by Labour so that it is unclear if black is black, white, green or some other colour.

    This will show the electorate who has done what and to some extent take the politicking out of key aspects of government.

    (2) I think you are overstating the importance of the OBR (and the BoE) being unelected. They are always subject to the checks and balances of political oversight (i.e. if they do anything that looks like they are taking over the airports and radio stations then the government of the day can legislate). And... what can they do? The OBR are only suggesting a general trend in policy, they are not setting rates so there is a very limited amount of damage possible. And the BoE are unlikely to be staging a coup d'etat. So where's the harm?

    The key role is in making it very visible when a government is acting irresponsibly and that has to be a good thing. It should be much harder in future to try to buy votes with public money.

    The interesting thing will be when a government "disagrees" with the OBR... what will they do then? Simply ignore them and do what they want, or... abolish the OBR.

  • Comment number 36.

    Stephanie Flanders wrote: For some it will feel like the heart has been sucked out of government. For those of a more technocratic bent, it will be about time.
    -----------------

    Stephanie, I'd like to believe I am from the latter group but we, the technocrats, also believe that man is NOT trusted to be the unbiased judge of what's best for other men!

    The only method which gives the most unbiased result is The Scientific Method. It has nothing to do with who is on coalition power or who's in opposition.

    The Scientific Method relies on observing and gathering of information by men but ultimately the decision is delegated to be calculated by the computers.

  • Comment number 37.

    "As Mr Osborne has himself said, the analogy is inexact because you can't give an unelected body "independent executive power over the levers of fiscal policy." "

    ...and letting a bunch of ignoramus politicians who have proven their 'moral standards' and whom will manipulate anything (including the economy) to improve their chances of their only aim - gaining or retaining power - is a much better idea?

    Of course I'm not happy with the unelected Merv making vital calls - but at least he understands a bit about Economics! - this move takes the faulty car from the Stig (Mervyn) and hands it to Maureen from driving school - in an effort to reduce the chances of a crash!!

    I won't be surprised if the Government soon starts dictating interest rates - and even less surprised if that means they stay low for a lot longer than it is neccessary.

  • Comment number 38.

    "Office for Budget Responsibility matters"

    This is just yet another quango - I thought the con/lib Government was about REDUCING quangos not creating more!!!!

    Let us hope they also get rid of the similar parts of the Bank of England the The Treasury and then if the new quango costs less than before it may be a good idea - otherwise just take what the private sector says and use that - a zero cost option.....

  • Comment number 39.

    The problem about statistics from ONS and the reports from the Bank of England and the Treasury is that they are nearly incomprehensible to the informed layman who is not a statistician or financial expert. Try to find out what the assets and liabilities of Britain are. I warrant you will draw a blank. Try to find out what income and expenditure are, nice and simply expressed. You will likely draw a blank. Try to find out what exactly the gold reserves are. You will be met with obfuscation and then a silence which denies you an answer. If we can expect nothing more from the new OBR, let us hope it is clearly and simply expressed facts that the average informed layman can follow. Don't merely tell us what is included in the figures, but what has been left out. For goodness sake be open and transparent. The thing about the truth is that no matter how ugly it is, it provides goal posts for which everyone may aim. Lying is shifting the goalposts around the field so that no one knows where they are and can aim at nothing useful.

    The budget deficit is a "mere" £163bn and it will take the life of this parliament (assuming it lasts five years) to pay it down. The national debt, by contradistinction, is more or less of the order of £1.8tr. That is about $4tr and is roughly FOUR TIMES THE TOTAL DEBT OF THE USA. Who on earth thinks it can ever be paid down? Certainly the chances of a democratic government being able to do so are virtually nil - with or without an OBR.

  • Comment number 40.

    OBR sound like a good idea in principal. Hope it will not become another Quango we have to keep an eye on and argue over with regards to it being independent.

  • Comment number 41.

    I'm surprised at the number of what appear to be Tory or Lib Dem voters against the concept of the OBR. It boils do to this: for "BR" read "Office of...

    We're sick and tired of the socialists cooking the books so this office will make public the state of the nation's finances throughout a government's tenancy. No more tax-and-spend for you boys".

  • Comment number 42.

    #32. stanilic

    "...whether or not VAT is extended onto zero rated merchandise such as food and children's clothes" I'd be amazed if these exemptions are touched - maybe an indication as to how deep the black hole is whether they do.

    There is one thing holding the Government to (mopre accurate) account with OBR, so we'll know the size of that particular hole. No sign yet of any appetite to quantify the private sector debt hole...or what remains in yet to be unwound derivatives.

    Whenever a new Government agency appears, I always think of Orwell's 1984 and the satire that ministries usually act in the opposite of their title.

  • Comment number 43.

    Everybody feeling very jolly and non-cynical again?

    C'mon people, lighten up. Things really aren't that bad. Yup, Labour went overboard on spending but lets not forget that millions of people gained significantly from the economy over the past 10 years or so and - assuming they have been responsible with their income - surely still have the benefits of that period to fall back on. The people who are in real trouble will be those who have lived beyond their means and struggle to keep up with repayments. Unemployment has not been as bad as waas forecast earlier in the year.

    Ultimately, it wouldn't have mattered who was in power during the global financial crash - it would have hit any government hard. Arguably as Tory government wouldn't have spent so much of the public purse, but by the same token it is widely accepted that their response to the crisis (refusing the nationalisation of banks etc) would have been a grave error. For as long as the global markets operate in the way that they do then we will have to endure booms and busts of varying degrees. If, as a country and as individuals, we simply acknowledged that we need to consolidate during the booms (i.e. save a higher proportion of our earnings) then we can ensure that we ride through the busts without too much discomfort.

    Chin up.

  • Comment number 44.

    Time will tell whether this new office will have any clout or will be quietly sidelined as this government progresses. Several people have already commented that the efficiency savings are supposed to be aided by a reduction in unelected quangos, etc. Maybe we need more quangos in order to have less, how about a quango on quango reduction?

    However, the defecit reduction is a massive problem - the issue which divided the parties at the election is when and how deep to make the spending cuts. No-one knows what exactly is the right answer but a double dip recession will help no-one.

    What I'd like to know is if the Colation cuts take us back into recession, will they be reigned in or pushed though regardless?

  • Comment number 45.

    Making the Bank of England (which should be the Bank of Britain!) independent, was one of the few really good things to come from the previous Government. What was missing was an objective view of the state of the economy. This move by the new Government can only be welcomed.

  • Comment number 46.

    16. At 10:38am on 17 May 2010, PortcullisGate wrote:
    12. At 10:24am on 17 May 2010, DT_1975 wrote:

    The ONS has already proved itself to be highly effective in bringing both Tory and Labour politicians.

    ========================================================

    Sorry I cant see that how did we get into this massive hole if they did.

    I also want know what the civil service were doing surely it was their job to see that this mess could not be covered up for so long.

    The people in the treasury must have known what was going on.

    They failed in their duty as I see it.

    =========================================

    Hi PortcullisGate,

    If you do a search for "ONS" and "Knife Crime" you should be pointed to many news stories of how the Home Office were slapped down very hard for releasing numbers selectively, and before they were ready, to try to make the government look good.

    Also the Conservatives were recently rapped for trying to compare crime statistics from the late nineties with the latest figures, even though they used very different methods for data collection and were not comparable. The Tories got laughed at by the numerate community when they then tried to gloss over the fact, that the statistically sound analysis, which the head of the ONS pointed them to, showed completely different behaviour to what the Tory's analysis showed.

    The ONS do publish numbers on national economic performance, GDP, etc., but I think (and I could be wrong) that its the Treasury who have responsibility for collecting data, and reporting on government expenditure. So I think you're right, the people at the Treasury probably do know exactly what's going on and they probably did fail in their responsibility.

  • Comment number 47.

    The role of politicians is to represent the electorate when deciding whether we as a society want to pay more to have better services and welfare or whether we would prefer to pay less tax and decide what services should be compromised. The trick that politicians need to be prevented from playing on us is pretending that we can afford more than we really can by running a deficit which relies on overly optimistic growth assumptions to ensure our debt doesn't blossom out of control. Having an independent view of the ecomomics of deficit spending seems like a good thing.

  • Comment number 48.

    #43 - a point well made. Osbourne made the wrong fiscal policy calls time and time when in oposition, the great unanswered question is what he'd have done if in power.

  • Comment number 49.

    sorry, Isn't Mervyn King the same guy who was in control of monetary policy and didn't know it during the credit crisis? only was advised by Tucker through his Macro-Prudential papers?
    and Isn't he the same guy who wasn't aware that we couldn't support the banks without making it public because we hadn't implement 'public interest' exception? ahh yes follow his advice that will take us out of this mess, and while we are at it, lets say irresponsible things like we are in worse position than Greece so as our GILTs suffer - good going chaps

  • Comment number 50.

    Soon "budget responsibility" will be easy - when there's no money left you can't spend. Caledonian Comment

  • Comment number 51.

    - And they should follow it up with legislation that triggers an election next time we get anywhere remotely close to the current level of fiscal irresponsibility.

  • Comment number 52.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 53.

    What a wonderful future we all have: the banks, government, and all the authorities working together for the good of all. No more quarrels, just all pulling together, correcting the wrongs of the past - and we all agree on what the current problems are don't we. And we have Gordon off the head the IMF, says the Sunday Mirror. At last the dawn of the New World Order.

  • Comment number 54.

    #39. newProtectorCromwell wrote:

    "The budget deficit is a "mere" £163bn and it will take the life of this parliament (assuming it lasts five years) to pay it down. The national debt, by contradistinction, is more or less of the order of £1.8tr."

    Ahh... I think you have perhaps forgotten a large chunk of excess debt - that of the private sector - this also represents 'living beyond our means' and thus also needs to be repaid prior to the Nation regaining its competitiveness. Perhaps an extra £1.2tn.

    So in total we are in excess debt of £3tn or £120,000 per head of the working population, or £75,000 for every adult. When(!) we have paid this back THEN we can recover. We could do this by seeing a halving in house prices and a liquidating, through bankruptcy of the debt - we need this debt-deflation prior to recovery - otherwise all we are doing is subsidising our past errors and profligacy. It is probably that we not only need this, but it is also essential for a recovery, as it has proven in previous depressions (see 1870 and 1930.)

  • Comment number 55.

    39. At 12:03pm on 17 May 2010, newProtectorCromwell wrote:
    The problem about statistics from ONS and the reports from the Bank of England and the Treasury is that they are nearly incomprehensible to the informed layman who is not a statistician or financial expert.

    ======================================

    I understand where you are coming from. I once had to help a friend through the maths part of her economics degree, and even though I have a PhD in mathematics, I struggled to come to terms with all the terminology and BS!

    However, I disagree with your sentiment on this. If you pair down the subtleties of the extremely complex system that's the economy into something that a layman can understand, then the information is next to useless. Its like asking a brain surgeon to explain what he's going to do to a patient, and then complaining that any more information than "I'm going to cut into your brain and fix it" is unnecessary!

    I agree that information should be made available more easily. There are plenty of very numerate people in this country who can understand the subtleties of this class of statistics, who can be trusted to rip any political BS in the numbers apart. After all, its mine and your taxes they're wasting...

  • Comment number 56.

    #51. MattWasp wrote:

    "And they should follow it up with legislation that triggers an election next time we get anywhere remotely close to the current level of fiscal irresponsibility."

    You should note that the private sector has been just as irresponsible as the public sector - and the private sector cannot raise taxes to get out of its hole - all it can do is to reduce spending!

  • Comment number 57.

    Mervyn King may not be elected and yet still hold considerable power, but at least the decisions he makes are unlikely to be self serving.

    The House of Lords, on the other hand, are also unelected and yet the decisions they make may well be self-serving and all but hidden from public view.

  • Comment number 58.

    #4 Joseph

    If Labour did one thing over the past 13yrs it was to generate the illusion that the Public Sector is not wholly dependent on the Private Sector.

    It's very simple, without the Private Sector there's no money for the Gov to spend.... don't kill the Golden Goose!

    In addition, I get confused with Labour thinking at times.... by bringing in 50% tax on earners above the £150k threshold are they trying to narrow the gap between rich and poor, dissuade people from earning high salaries or make taxation fairer?

    Because if the revenue is needed, isn’t it then in the Labour’s interest to ‘look after’ this valuable revenue stream? .......... remember the bleating from them about ‘City’ bonuses pre the crash – You can’t? That’s because they weren’t bleating, they were handing out Gongs!

  • Comment number 59.

    Another Quango, that makes a change a Politician saying one thing and doing another.

  • Comment number 60.

    39. At 12:03pm on 17 May 2010, newProtectorCromwell wrote:

    "Try to find out what income and expenditure are, nice and simply expressed."

    http://www.ukpublicspending.co.uk/index.php

    This website shows all government expenditure by department. Its very helpful for when politicians make outlandish claims. I can't help with income, debts etc.

  • Comment number 61.

    #57

    Right. The House of Lords is more of a problem, but not in their capacity of giving a Bill a second look, but in the fact that it is still permissible for the government to co-opt members of the HoL into the cabinet.

    It always seemed wrong to me - and look where it led: Mandelson and Adonis were two of the worst influences of the last regime. The only two to be truly in favour of a coalition of losers.

    If we want to start on dealing with the unelected in power, let's start there: no unelected members of Cabinet.

  • Comment number 62.

    Amusing rants by the obvious Labour supporters. I think it will become clear even to them how much trouble thos country is in when the current government releases the total by which we are in debt. In an earlier post, someone mentioned that their children are just starting out in life and are already burdened by this debt. Hard to believe that Gordon Brown managed to get us into this state in just 10 years, eh? More amazing, still, was the amount of debt he managed to hide from the public. Even his puppet chancellor's attempt to put a bright spin on recovery has been proven to be nothing more that a further attempt to hide the truth.

    Which is what the new office must prevent in the future.

    By the way, I have advised my children to complete their training and, as soon as possible, get the hell out of Dodge! They should emigrate to a country that has a future.

  • Comment number 63.

    #56 John_from_Hendon
    'You should note that the private sector has been just as irresponsible'

    Can't disagree with that - although at least some within the private sector have assets to show for their debt.

    As a nation we find it hard enough to save for our retirement. I find it a bit perverse that our government has been so determined to undo what little effort we do make.

    Diverting pension savings away from productive investment into government revenue expenditure is one method. Discouraging saving through the tax system is another.

    Still, I suppose if you live in the fantasy land of public sector pensions it all makes sense.

  • Comment number 64.

    54. At 12:47pm on 17 May 2010, John_from_Hendon wrote:
    'So in total we are in excess debt of £3tn or £120,000 per head of the working population, or £75,000 for every adult. When(!) we have paid this back THEN we can recover'

    Come on JFH, we all know it can't be paid back. How many people have or ever will have £120,000 spare. £120 perhaps, but not £120,000.

    Financial tip of the day = Printing Press manufacturers shares




  • Comment number 65.

    #57. RedandYellowandGreennotBlue wrote:

    "Mervyn King may not be elected and yet still hold considerable power, but at least the decisions he makes are unlikely to be self serving."

    See his £5 million pound final salary pension fund pot!

    Also as I have argued since 2008 on this blog and from 1997 directly to both M. King and his late predecessor in writing that they should have been concerned with preventing the quite obvious bubble economy developing - prior to the inevitable crash, but all they either said was that they only had to manage to the cpi.

    There are not two types of inflation, one in the cpi and the other outside - there has always been just one, and they knew it, but their integrity deficit prevented them from stopping the bubble and hence they were substantially responsible for the bubble and crash. They knew, or we have every right to expect that they should have known, about the way that financial institutions were creating credit through the CDO market and they did noting. And you want to believe this man!!!

  • Comment number 66.

    SF - could you tell us how much the psbr was out for years pre-ceeding the crises so we can judge how far out they were in forecasts? As you note, the treasury's growth forecasts were massively better than the city (and look how bad independant unemployment forecasts have been).

    And all the while during this 'bad forecasting' psbr was kept at below 40% of GDP (even if that was credit inflated) - something the Tories could only ever dream about - not that they were ever even competent to do that.

    This is old style hateful Tory politics. Osbourne is foaming at the mouth to make cuts because of the same old right wing dogma about public services, and they want to point at someone to so it doesn't look like their decision.

    The cynical interviews of the failed Tory old guard are spouting about skeletons in the closet as if goverment just stops operating in the year close to an election. It's the same old liars and failures of old - Francis Morbid, Letwin, Redwood etc etc.

    This is the politics of cutting expenditure while putting maximum blame on the previous government.

    Adding pensions liabilities means Osbourne can argue to cut pensions of low paid people; adding PFI costs (ie leasing costs) is like expecting companies to but the entire capital cost onto the company's balance sheet - ridiculous on a 30 year school even if they were expensive arrangements (due to the rip off private sector contracts).
    It means they can then argue lack of affordability and so argue for privately built and run public institutions (schools and hospitals) and so divert money out of public sector administration and service provision to those contracts. There will be no money for public sector provision but plenty of cash for private contracts.

    The Tories are too spineless to put the current blame where it lies - on the private sector that caused this problem, gave us a trillion of liabilities and wants/is going to get a public sector bailout.

    The tories are going to lay all the blame at labour's door which means the private sector is going to get away with it and never get any better.
    I am conservative with a small 'c' by nature but cannot stand the way the Tories operate.
    Osbourne is going to be the worst chancellor in living memory due to his right wing ideology and using tricks like an OBR is not going to take any responsibility and blame others.

  • Comment number 67.


    The creation of the OBR group is for one reaeon and one reason only - To give the government someone else to blame for the huge cuts that are coming our way. End of.

  • Comment number 68.

    "But the revenue and borrowing forecasts in the latter years of the Labour government were objectively atrocious."
    and
    "But tax revenues were being consistently overestimated by Gordon Brown's Treasury, long before Northern Rock."


    So......now that the election is over, is it suddenly BBC policy to tell the whole truth as well? We haven't heard these forceful quotes before, certainly not so firmly spelt out. If you knew it was GBs treasury that was attrocious (remember he became PM in 2007, so at least 3 years ago) why have you not made these comments before?

    When there was talk of Tory cuts versus Labour investment surely some independent objectivity spelling out these 'facts' above might have been helpful.

    The new Government has inherited a mess, yet in the run up to the election, Labour has been able and allowed to convince the public that there is/was not a problem. If the Beeb had made these sorts of comments earlier and more forcefully, we might not be in this credibility gap. We would still have the problem, but at least we wouldn’t have to still try to convince half the population that there is a problem, let alone how to deal with it.

  • Comment number 69.

    Most of the evidence from the Marshall plan of 1947-51 (European Recovery Program)suggests the need to encourage consumer demand as the way to economic growth and recovery.The USA used about $25 billion (10% of their GDP) to stimulate growth in Europe and subsequently US exports to europe.By 1951 western European economies had surpassed pre-war levels.The Chancellor's idea of cutting spending this year undermines consumer demand,encourages the need for households to be skeptical about the future and employers to hold back on recruitment plans.This will result in less growth if not a greater dip.Just as money market has expanded (with quantitative easying etc) as seen from improved stock market results the real goods sector (agreggate Demand) needs to keep up to maintain the equilibrium. Coupled with reduced european exports as the Euro zone cuts deeply.It's all about perception in a fragile recovery.Let's tighten our belts!!!

  • Comment number 70.

    #10. At 10:13am on 17 May 2010, PortcullisGate wrote:
    "I have three children who are just starting out in life their lives could be as debt slaves to pay for Labour economic destruction."
    ---------------------->
    I agree with your concerns, if not your view on the cause. In my view, successive Conservative and Labour administrations share the blame. Harold Macmillan started the pension time bomb ticking when he decided to use National Insurance income as if it were a tax. It worked then becuase 2/3rds of the population were in work. Now, as the baby boomers retire, there will be only 1/3rd of the population working. That kind of arithmetic is clearly unsustainable. In the 70's/80's we were equally profligate with the proceeds of North Sea Oil, and the proceeds of numerous privatisations ... most of which was squandered in the unsustainable boom of the late 80s. Then under NuLab, we saw PFI reduce the perception of debt; by simply calling it something else.
    ... So back to the point. If the OBR are truly independent, and have a remit to look at the economy in the round, over the long term, then that can only be a good thing. IMHO, politicians suffer from temporal myopia. They can never see further than the next election ... and assume that if they don't spend the country's resources now, the other guys will when it's their turn. We therefore need an independent long term view on the economy for all our sakes. Hopefully the OBR in conjunction with the BofE can fulfill that remit.

  • Comment number 71.

    I 100% support the OBR.

    There is also one tax increase I would really like to see: a 1% tax on the gross value of outstanding debt, paid by the borrower.

    It's time those who got us into this mess through their own irresponsibilty started to have a little incentive to behave more responsibly in future and to pay back the savers who are currently being utterly fleeced through the public subsidy of low interest rates. It's time we started to reward good behaviour rather than bad behaviour.

  • Comment number 72.

    OBR

    Out of Bunglers Reach ?

    Osbourn's Bungle Reducer?


    .....

  • Comment number 73.

    Had they "do the right thing" six or eight years ago no one would be in this mess.
    An independent body to decided who should pay for the sins of the bankers. It certainly won't be them.
    When all else fails...reorganize.

  • Comment number 74.

    One outgoing Labour minister has kindly spared his replacement the onerous task of auditing the books!

    Labour minister Liam Byrne left note on desk: ‘There’s no money left’
    http://business.timesonline.co.uk/tol/business/economics/article7128665.ece

  • Comment number 75.

    The creation of the OBR will at a stroke limit the ability of the Chancellor to be reckless like the one before last Chancellor was (Brown). The sheer size of the countries deficit will be a brake enough and I fear a generation will suffer and this country will never be the same again.

  • Comment number 76.

    I thought I would quote Gordon Brown in June 1997,Stephanie - this trust thing was an issue 13 years ago!

    "Budgets must be built on honest foundations. This is the only way to restore public trust in the public finances.

    "This is the first time that any Chancellor has opened up the Treasury's forecasting assumptions to such open and independent scrutiny. And it means that the Budget arithmetic will be based on financial conventions which are open, transparent and accountable.

    "I am delighted that the National Audit Office have provided independent backing for my new assumptions for forecasting public finances. The NAO note that the assumptions have been arrived at systematically on the basis of the available data and by methods which interpret it in a reasonable way.'

    So, what role have the National Audit Office played.What assumptions have they been asked to audit for budgets and why do we need to have a New Office for Budget Responsibility when the NAO are supposedly independent? How much will this new quango cost and why cant the NAO do the job?

  • Comment number 77.

    Stephanie - I'd really like you to ask George Osborne if he will give a firm undertaking that the senior officers of the Office of Budget Responsibility will NOT receive bonuses.

    Oh, and on a day when the knife is being sharpened to cut Quangos, I can't help noticing that the Government has just created this one. I would like someone to keep a count of new Quangos set up by the Coalition.

  • Comment number 78.

    Guarantee one, its membership will expand; guarantee two it will be stuffed with right-wing journalists and bankers and Tory grandees within a year; guarantee three it will make no difference to Tory policy as they shrink the economy - these sorts of right wing think-tanks only become vociferous when anyone tries to do anything progressive - and Osborne and Cast Iron Cam are not the champions of social progress, regardless of the claims they make for themselves! You can bet the Tory backwoodsmen will bring it into the argument to rubbish any Labour PArty policy. That's what its really for!

  • Comment number 79.

    #56 John_from_Hendon

    "You should note that the private sector has been just as irresponsible as the public sector - and the private sector cannot raise taxes to get out of its hole - all it can do is to reduce spending!"

    Er No. The private sector raises the price of its goods and services in the smae way as governments raise the price of their goods and services (taxes)

    Private companies, led by the banks, have been quietly increasing their take ever since the credit crunch hit, mainly to replace borrowings by retained earnings. That is why inflation has proven to be so "sticky."

  • Comment number 80.

    68. At 1:39pm on 17 May 2010, bottomwoodfarm

    Well spotted

  • Comment number 81.

    #54. Wrote
    "#39. newProtectorCromwell wrote:

    "The budget deficit is a "mere" £163bn and it will take the life of this parliament (assuming it lasts five years) to pay it down. The national debt, by contradistinction, is more or less of the order of £1.8tr."

    Ahh... I think you have perhaps forgotten a large chunk of excess debt - that of the private sector - this also represents 'living beyond our means' and thus also needs to be repaid prior to the Nation regaining its competitiveness. Perhaps an extra £1.2tn.

    So in total we are in excess debt of £3tn or £120,000 per head of the working population, or £75,000 for every adult. When(!) we have paid this back THEN we can recover. We could do this by seeing a halving in house prices and a liquidating, through bankruptcy of the debt - we need this debt-deflation prior to recovery - otherwise all we are doing is subsidising our past errors and profligacy. It is probably that we not only need this, but it is also essential for a recovery, as it has proven in previous depressions (see 1870 and 1930.)"
    -------------------------------------------------------------------------
    First of all we are not in a depression, you can't link this recession to the great depression as one of the (arguable) causes of the great depression was the adoption once more of the gold standard after the 1st WW ( See Paul Krugman for an explanation).

    Second where on earth are you getting America's debt from? America's debt stands at about 60% of GDP ( of 14.6 Tr), which is very clearly more than £1.8 tr. If this is the case ( with regards to debt ) then why is Germany (with a debt of about $5tr) in a position to underwrite the EU bailout ( which is essentially what they are doing as their debt is considered to have virtually no chance of default, like the US in that respect).

    Thirdly If you studied economics you would know that Sovereign debt is sustainable as long as GDP growth is larger than interest rates ( if you think the only reason that the interest rates fell to 0.5% was solely to prop up the property market then why has it not risen as the market has started to recover, It fell when it became apparent how much money needed to be pumped into the financial sector). The longer that it takes to pay off debt the cheaper it ultimately becomes due to inflation ( unless you index link your bonds e.g. TIPS but these have tiny yields). The simple fact is we were in a recession, during which weak companies fail (and often poorly managed governments). The market knows this and is looking to profit by it. After the Greek debt crisis it will no doubt be something else next week until global growth is bedded down.


  • Comment number 82.

    #54 John from Hendon

    "So in total we are in excess debt of £3tn or £120,000 per head of the working population, or £75,000 for every adult. When(!) we have paid this back THEN we can recover. We could do this by seeing a halving in house prices and a liquidating, through bankruptcy of the debt - we need this debt-deflation prior to recovery - otherwise all we are doing is subsidising our past errors and profligacy."

    Indeed. Public and private section debt. Asset bubbles (especially housing). The ever-growing gap in wealth between rich and poor. They are facets of the same problem. The recovery must involve the bursting of the asset price bubbles and writing off much of the public and private debt. The effect of both is of course to transfer net wealth from the rich/creditors to the poor/debtors.

    There are various ways in which can be achieved. Mass bankruptcy is one, but redistributing wealth through the taxation system is likely to be a lot less painful.

  • Comment number 83.

    It'll be interesting to see just how much future expenditure the last lot have locked in through contracted spending commitments - and I don't just mean PFI

    I don't imagine they'll be cheap to unwind.

  • Comment number 84.

    I hear that they are going to include the Enron of balance sheet Pensions and PFI debts as well to the debt figures and I welcome that but the real elephant in the room now is can we reduce these levels of debt before the demographic time bomb hits.

    Labour may have now engineered a situation where our children can never earn enough to pay off this debt.

    If they can will their lives be blighted for decades to pay for Labour spending spree?

    If we do not view the national debt against the falling proportion of the population in work and greater numbers of pensioners and school children then we will not deal with this situation properly and leave our kids in the ****.

    I have three children who are just starting out in life their lives could be as debt slaves to pay for Labour economic destruction.


    =====================================================

    When Labour came to power Britain had the best funded pension system in Europe now we have one of the worst.

  • Comment number 85.

    #74 Would that it were true. Unfortunately there is a huge pile of negative money upon which interest is due !

  • Comment number 86.

    Ode to Mervyn

    Print more money and print it quick
    Lest our debt mountain makes us sick

    Ignore the savers and fixed income pensioners to
    Just fire up the press we want twenties in blue

    Because as each day passes and we sink further into the red
    And not even the prudent can sleep soundly in bed

    Tell us it’s and stimulus package and lie to us out-right
    But don’t leave us stranded in case the workers take fright

    We don’t want to see riots and pickets on the gate
    So print lots more money before it’s too late

  • Comment number 87.

    #79. Co-operateordie wrote:

    "er No The private sector raises the price of its goods and services in the smae way as governments raise the price of their goods and services (taxes)

    Private companies, led by the banks, have been quietly increasing their take ever since the credit crunch hit, mainly to replace borrowings by retained earnings. That is why inflation has proven to be so "sticky."

    Please understand that the personal private sector is where the excess borrowing has been and they are unable to raise their prices in a time of rising unemployment. This is where the profligate borrowing has occurred - it only it had been in the private commercial business sector things might not be so bad and the outlook might not be so bleak!

  • Comment number 88.

    #66 - Sixpack wrote:

    "The Tories are too spineless to put the current blame where it lies - on the private sector that caused this problem, gave us a trillion of liabilities and wants/is going to get a public sector bailout."

    I have never heard such unadulterated rubbish. Sixpack has had an overdose of Labour propoganda, I think.

    Presumably the private sector you are referring to is the Banking sector? Given the current bank share prices, it is believed (Source: Radio 4, just before the Election) that the banking crisis is currently responsible for about £6 billion of the £170 billion defecit.

    Which means that the vast bulk of the defecit must come from elsewhere - and that is the public sector itself. For 10 years Gordon Brown has consistently borrowed money to finance his overspending on the public sector and, what is worse, he has done everything in his power to hide the extent of his mismanagement of our economy.

    You want to foam at the mouth about the defecit, the public debt and the damage to this country caused by them? Take off your rose-coloured specs and understand it was caused by Labour. Vent your bile in that direction and then shut up whilst the new government has to try and clean up after them - again! And we all suffer the pain - again! That is bad enough, but then we have to listen to prats like you blame it on the Tories, when all evidence is to the contrary. Give it a rest.

    The outgoing Secretary to the Treasury said it all with his parting words "There is no money left".

  • Comment number 89.

    #82. random_thought wrote:

    "The recovery must involve the bursting of the asset price bubbles and writing off much of the public and private debt. The effect of both is of course to transfer net wealth from the rich/creditors to the poor/debtors.

    There are various ways in which can be achieved. Mass bankruptcy is one, but redistributing wealth through the taxation system is likely to be a lot less painful."

    I agree that overpriced assets need to be returned to the market at lower values. However the present owners of these assets will, because of the nature of the mortgage security, inevitably take a hit when their individual debt is de-leveraged. If they have the funds they may be able to retain ownership of their mortgaged asset - but in the vast majority of cases they will lose possession. The bank / mortgage holder will then have to take the hit on its balance sheet - the state will bail out the bank and the taxpayer squeezed yet again.

    The assets will re-enter the market and those with cash or the ability to raise a mortgage will purchase the asset at a lower price - these are however unlikely to be the former 'owner'/mortgagee as their credit rating will have tanked. The situation is more complex than creditors loss to debtors gain that you present.

  • Comment number 90.

    76. shireblogger wrote:

    'So, what role have the National Audit Office played.What assumptions have they been asked to audit for budgets and why do we need to have a New Office for Budget Responsibility when the NAO are supposedly independent? How much will this new quango cost and why cant the NAO do the job?'

    ------------------------------------

    '...when the NAO are supposedly independent?'

    Ah!...now there's the rub...

    ‘£336,000 worth of travel expenses for civil servant paid to advise on saving money’
    http://www.thisislondon.co.uk/news/article-23395956-336000-worth-of-travel-expenses-for-civil-servant-paid-to-advise-on-saving-money.do

    ‘…Sir John Bourn was appointed by Tony Blair to advise ministers on potential clashes between their public duties and private affairs - and to investigate any claims that the rules have been broken.’


  • Comment number 91.

    43 - deep heat

    Where have you been living. The whole of the middle class have been negatively affected by the last labour government. The whole of realm of small to medium businesses has been stunted. The gap between rich and poor has widened dramatically. There are far more poor than a few thousand rich!!! Our hospitals are over funded but dirty and dangerous places to be. Our younger generations have a future of struggle and strife.

    On the positive side we have kicked Labour out and will put a stop to fat cat salaries and bonuses within the public sector. Why everyone has moaned about fat cat salaries in the private sector and not even looked at the public sector is beyond me. At least the private sector create the GDP of this country - the public sector just recklessly spend it!!!

    We have chosen in our voting to create a different type of government. We may not have realised it as I believe every sensible person in this country who voted, voted for the party they most believed in. The outcome is a coalition thanks to the generosity of David Cameron and the sensibility of Nick Clegg. Personally I think so far they have taken decisions that will help give this country some sense of balance and sturdiness. Some decisions might concern us now but for heaven's sake let us not all carry on putting our heads in the sand and have a little thought for future generations.

    My real worry is not the 55% or the OBR - it is dissent within the Liberal Democrat Party to wantonly misunderstand that their leader decided to put country first and not party. If Nick can contain the likes of Charlie K then we have a very good chance of drawing the dissolute threads of this country together and hopefully we will be able to keep this government in place until we are out of the woods.

  • Comment number 92.

    84 - Portcullis gate

    When Labour came to power we not only had the best pension fund in Europe we also had a very strong gold reserve.
    Both were very quickly plunged. First by subsiding the French pension scheme with ours and secondly by very secretly selling our gold to by Euros!!!!!

    We should have kicked that government out then as the writing was definitely on the wall.

  • Comment number 93.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 94.

    It's good to see the government give up control so that they can't misrepresent the expected outcomes of their policies. Will they also let the opposition have access to cost out their proposals pre-budget and pre-election. Without this we're still stuck with yah-boo fact-less discussions of budget proposals.

  • Comment number 95.

    #81. x wrote:

    "First of all we are not in a depression, you can't link this recession to the great depression as one of the (arguable) causes of the great depression was the adoption once more of the gold standard after the 1st WW ( See Paul Krugman for an explanation)."

    Please read the debt-deflation view of the 'real' cause of the 1930s depression - see Irving Fisher.

    I have argued at some length on these blogs the necessity to understand the role of debt and depressions and the need to undergo debt-deflation prior to recovery.

    I also reject the affordability of sovereign debt argument that you present - I look upon as one of the primary errors in economics that is chiefly responsible for the current crisis. Doing what got us into this situation, but more so, is never going to be a way out - it is illogical and stupid and bad economics. If where you did economics taught this then it is a fundamentally bad economics school and should be re-educated!

    In economics there needs to a reasonable price for money - presently this is near zero (if not actually negative with QE) - this is the worst (i.e. lowest) price for money since the inception of the Bank of England over 300 odd years ago. Your insane affordability argument is a downwards spiral that traps and destroys economies. We have to increase the price of money if we ever want out of this calamitous recession. So please go back to your books and read them with a more critical and open mind!

    PS what is 'x' as a blog identity!

  • Comment number 96.

    #81 x

    Never mind exact figures and by all means believe that our debt, and that of the USA and Germany, is sustainable, if that is what you wish. The truth is that insolvency is staring the entire western world in the face - and the end of everything we have taken for granted all our lives. You can then say "but, but, but..." when it all goes down the drain with flushing noises and the centre of gravity of the world shifts forever to the East.

  • Comment number 97.

    #84. At 2:47pm on 17 May 2010, PortcullisGate wrote:

    When Labour came to power Britain had the best funded pension system in Europe now we have one of the worst.
    ------------------------------------------->
    Was this in reply to my post at #70???

    If so, can you provide a source for that statement? It may well be that we were better than the rest but that does not mean that it was not a timebomb waiting to go off. The state side of pension provision was still hopelessly underfunded due to the fact that IT HAD NO FUNDS. Macmillan's assumption was that pensions would be paid for from tax raised directly from the working population, rather than funding a national investment pot. This worked whilst we had 2/3rds of the population working ... but within the next 20 years, that will shift dramatically to 2/3rds of the population in retirement. He was right when he told my parent's generation that they'd never had it so good ... because they got their pensions for free ... paid for by this generation. It's a similar pattern to PFI, just done in a different way.
    The bottom line for me is that I like the idea of the OBR since there's plenty of historical evidence to show that BOTH Labour and Conservative administrations are guilty of poor decision making by ignoring long term costs. By putting this in place, George has just gone up a notch in my estimations ... (Or maybe it's Ken Clarke/Vince Cable/David Laws Doing?)

  • Comment number 98.

    I think we should give Osborne and Laws a chance. The OBR is an attempt to bring some confidence in the city that the figures have not been cooked.

    Someone asked the question "if everything is farmed out to quangos what is left for Politicians to do?". This is a good question and there is a good answer "they should set strategies and leave the implementation to the experts and not interfere in it themselves". This is where things have been going wrong for so long. Government after government has proved itself incompetent at implementing its own policies.

  • Comment number 99.

    Two terribly nice (but economically naive) chaps in the garden of No 10, united by their desire to "do the right thing", but have they done it?
    I am one of those people who feel uneasy about where they are headed.
    The Office for Budget Responsibility (OBR) could indeed by an interesting test. Is this the time for tests, or the time for certainty?
    When it comes to budget policy, the OBR is supposed to keep the government on a much shorter leash. Really? How?
    Now more than ever, (I agree) each lever of macroeconomic policy needs to know exactly what the other is doing. So, OBR will provide a running commentary of British fiscal policy. At least twice a year, this unelected three person body, with its own staff, will publish independent fiscal forecasts around the time of the Budget and pre-Budget report. On the basis of its "independent" forecast, it will then recommend how much policy needs to be tightened or loosened to have a decent chance of meeting that goal. It's impossible to assess this without knowing the operational procedures of the OBR. Have those procedures even been written?
    The long-term cost of servicing the public debt could now be lower, because investors know there is a highly visible independent body overseeing the books. You can look at books till the cows come home, but you must know what you are looking for, and believe me the UK Government's books are riddled - like Greece, Spain, Portugal, Italy, and all other PIIGS - with tangled bundles of derivatives and CDOs, which must (MUST) by identified as toxic debt and cleared.
    The Tories have rowed back on their plans to disband the Financial Services Authority. However they will still give greater powers to the Bank of England to enable it to have a broader responsibility to oversee the financial sector and assess potential risks to stability. The BoE will be able to intervene and issue warnings to the FSA to act when it sees trouble brewing. This is backwards and very American. How effective can it be to have the central bank monitoring the financial sector and assessing risk. The Americans do it with the Fed, and we all know the pickle barrel that the Americans have landed in. You can't even count its debt.
    FSA, CEO Hector Sants announced announced months before a general election that the FSA could be disbanded. He tendered his resignation ahead of the election, which has cast uncertainty over the FSA's future because the Conservatives have retained the FSA, but not clearly specified its responsibilities.
    Right now, the Conservatives have all but disbanded the FSA and hand its powers for supervising banks to the Bank of England, effectively tearing up the system of regulation introduced by Labour. The opposition has blamed the current tripartite system – involving the FSA, the Bank of England and the Treasury – for the financial crisis.
    Not true!
    The cause of the financial crisis was lack of financial regulation in the United States of America, which was free to trade unregulated CDO and derivitive bundles onto markets that had little understanding of the entanglement. Also, problematic was American hedging or betting against soverign debt.
    Lord Oakeshott, Liberal Democrat Treasury spokesman, hit out at Osborne's plans. "Obsorne's half-baked plans to half-merge the FSA and Bank of England are already causing confusion and instability at the heart of financial regulation.
    Hector’s weakness was being to slow to spot the dangers of hedge funds and neagative betting. He was most certainly not alone.
    However my faith remained with the FSA, which candidly examined the failings in financial regulation that contributed to the onset of the crisis, learned the lessons and had gone on to reform itself into a much stronger and better equipped organisation.
    Osborne's lack of experience rattles me. Giving so much authority to the BoE rattles me. This strategy is nothing more or less than a carbon-copy of the Americanized banking regulatory system (which is non-existent), but I’m terribly sure that this UK surrender to US fiscal regulations (or lack thereof) was not done "slavishly".

  • Comment number 100.

    62 - Alan

    My son did just that five years ago. Didn't even go to university as he decided he did not want the debt. He is now in Asia Pacific and doing very nicely.

 

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