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Roula Khalaf, editor of FT, chooses her favorite story in this weekly newsletter.
The writer is the author “Growth: Discussion” and Economist at Oxford University and King’s College London
At normal times, the prognosis of public finances in the UK from the Budget Responsibility Office, expected this month, together with the spring statement of the chancellor, will be a significant moment. This time it’s seismic. An institution that is established to reduce the bias of the prognosis of public finances is now with a distant role: the final arbitrator is the government plan to accomplish its central mission – more economic growth – real.
This should never be the purpose of the OK. Set in 2010, George Osborne, then Chancellor, was designed to solve a different problem: that the official prognosis of public finances in the UK were not credible. The treasury had a strong impetus for massaging these numbers in a better form, regardless of the political composition of the Government. And the belief was that an independent statistical authority would be freed from this temptation. To this extent, Oba is a success story: its forecasts seem to be less biased.
However, the forecasts of public finances in the UK also require forecasts about the economy of the UK – among them what is expected to grow. If the economy was trying happily, these numbers would only play a supporting role. But this economy is stagnant, the government has changed that its main priority and vault of its majesty no longer produce its official growth forecasts. So, the numbers of the OR -a are pushed into the center of attention.
However, the complication is here: the eyebrow does not really know what causes growth. In fact, no one works. The real causes of growth are one of the great mysteries of economic thought. Hundreds of possible causes have been identified: all, from tax -to -infrastructure consumption reduction, the number of days of freezing to the level of newspaper readers. Even today, they remain hot challenged among various schools thoughts, distributed deeply political lines and a duel with each other.
With that in mind, the idea that an eyebrow knows enough to take over every government policy in the UK and List its impact on growth It is imaginative to one decimal point. Still, they will try to do it at the end of the month, with huge practical consequences. It is estimated that a reduction of a 0.1 percentage point in the prognosis of the potential productivity of the OR, for example, will create a hole of £ 7 billion in public finances of 8 billion pounds is the equivalent of the entire Defra budget.
But do other countries of independent “fiscal guards” have, like PRA? Yes, many do so, but their role is usually different. Most simply evaluate the official government prognosis or provide an alternative to sit with it. The latter actually produces it. And Chancellor Rachel Reeves went on, explicitly baking her eyebrow numbers into her new fiscal rules, making their forecasts final.
So we are in a strange world, where Reeves is best advised not to do what he believes to encourage growth, but to look at what the oblivion assumes that it triggers growth. Then she must simply make as much as she can, given her fiscal limitations, so the forecasts are better. In the old world, HMT was encouraged to raise numbers; In Novi, HMT is encouraged to spoil politics.
Furthermore, if Reeves decided to provoke the prognosis of the public when they were published – perhaps saying that their inner model would not properly capture the promise of their growth strategy – it would not look like a legitimate intellectual disagreement in the right causes of growth. It would be a risk to be considered a shameful attempt to avoid the rules themselves to end a fiscal profession.
Oba was established with good intentions. But she was a victim of her own success. Heavy political judgment on one of the most famous economic issues – what actually causes growth – is reduced to a technocratic budget that is largely implemented from the public.
What should we do? For starters, uncertainty in the forecasts of the growth of OR -a must be explicitly recognized: independence could reduce their bias, but that does not make them correct. Politicians must be brave enough to say that; The infections must be modest enough to agree.
In turn, the treasury must consider the re -introduction of its own growth forecasts. This is not because they are likely to be more precise than OR, but because we need more public discussions and disagreements in creating politics, not less, if we want to find creative ways from our current economic discomfort.
Finally, Reeves should review its fiscal rules again, maintaining its original spirit – the current budget in balance, a debt that falls as a proportion in the economy – while tuing the substance, so they are not so firmly attached to a set of calculations that, like all forecasts, will probably be wrong.
