The OBR’s Grip on Austerity

The UK’s Office for Budget Responsibility (OBR) has long been a symbol of the nation’s entrenched austerity mindset, perpetuating the idea that public investment somehow “crowds out” private capital. This notion, once a cornerstone of fiscal policy, has been repeatedly debunked by economists who recognize the benefits of government spending in driving growth and mitigating inequality.

The Trade Union Congress (TUC) is right to call for a root-and-branch review of the OBR’s approach, which has been criticized by thinktanks and campaign groups from across the political spectrum. The union umbrella body is urging new Chancellor John Healey to use his first budget on October 28 to re-examine the assessments of the watchdog, which they claim holds back investment.

This critique speaks to a deeper issue of how we approach economic policy in this country. For too long, our government has been wedded to an outdated ideology that prioritizes short-term fiscal discipline over long-term growth and prosperity. The OBR’s models have become a self-fulfilling prophecy, perpetuating the myth that public investment is a zero-sum game where every pound spent by government comes at the expense of private sector growth.

The impact of this approach has been felt across communities in the UK, as Paul Nowak, the TUC’s general secretary, points out: “For too long, the OBR has been a millstone preventing good growth across the country.” This is not just a theoretical concern; it is a lived reality for those who have suffered under decades of austerity.

The Weight of History

The UK’s economic landscape has changed significantly since the OBR was established in 2010. A decade ago, we were still reeling from the financial crisis and its aftermath; today, we face new challenges and opportunities in a rapidly changing global economy. Despite these shifts, our fiscal policy remains stuck in the past.

Thinktanks like Progress and the New Economics Foundation have long argued that the OBR’s approach is outdated and fails to account for the complexities of modern economics. They argue that public investment can “crowd in” private capital by creating opportunities for businesses to invest and grow.

The National Wealth Fund: A Beacon of Hope?

The TUC’s proposals for reform are closely tied to its call for greater investment in key areas like infrastructure and industry. One of the key planks of their policy is the expansion of the National Wealth Fund (NWF), which has been established to invest in projects that can drive long-term growth.

Nowak argues that by changing the NWF’s mandate, allowing it to invest in projects with longer payback periods, we can unlock new opportunities for growth and development. This speaks to our broader economic strategy and how we approach investment in key sectors like infrastructure and industry.

The Bond Market: A Concerned Investor?

While the TUC’s proposals have been welcomed by many, there are also concerns about the potential impact on the bond market. Some economists have raised fears that increased borrowing could send a signal to markets that the government is no longer committed to fiscal sustainability. This is a legitimate concern; as Oxford Economics pointed out last week, “The UK’s fiscal position is poor, while there’s an underlying wariness about the new PM’s commitment to fiscal sustainability.”

However, this should not deter Healey from taking bold action. As Nowak points out, Labour has delivered the second-fastest growth in the G7 – a testament to the party’s willingness to think differently about economic policy.

A New Path Forward

The OBR’s grip on austerity is starting to slip, and it is time for our government to take decisive action to break free from its constraints. Healey has an opportunity to make a real difference with his first budget; let us hope he seizes it by re-examining the assessments of the watchdog and reforming the OBR’s approach.

By doing so, we can create a more nuanced understanding of economic policy that recognizes the benefits of public investment. This is not just about numbers; it is about people – communities, businesses, and individuals who have been held back by decades of austerity.

As Healey prepares to take office, he must be bold in his vision for our country’s economy. We need a new approach to economic policy that recognizes the interplay between public and private investment, one that prioritizes growth and prosperity over short-term fiscal discipline. It is time to break free from the OBR’s grip on austerity and forge a new path – one that puts people and communities at its heart.