I doubt Rachel Reeves from most people It was announced yesterday This is what it turned out to be. OBR has published its forecast. This must be done twice a year. Things have gotten worse compared to forecasts that fit last October’s budget, and if Reeves did nothing, she would now violate the financial rules. As a result, she chose to announce reductions in disability benefits. The government estimates I’ll throw it at least 250,000 people are in poverty.
It’s not a complete story (see below), but there’s enough truth to make most people think this is a very strange way to implement fiscal policy. They would be right. The idea for the title of this post is Comment by Charlie Bean (Former British Bank, MPC and OBR) at the Resolution Foundation meeting. He points out that many people have wisely that Reeves is committed to keeping one budget each year. As a result, he suggests, what he calls the “adult” response to OBR’s new forecast is that Reeves simply warns and ensures that he meets the fiscal rules by committing to change his tax and spending plans in the 2025 budget later this year.
By October, all spending plans will be resolved and the Prime Minister will consider whether or not the tax will be changed. In a changing world, potentially everything is on the table. Even from a very selfish political perspective, if she makes the same changes yesterday that the announcement would compete with all other budget news, the political impact would be less.
So why didn’t she take the adult approach yesterday to focusing on new predictions? The explanation of charity is to condemn the truss’ fiasco, or rather the false lessons drawn from it by politicians and others. But if that’s the case, it’s really quite stupid and boy. Economic and fiscal news is routinely in the bond market, and OBR forecasts are another news item. If you previously announced that you will only make a major fiscal decision once a year, there is absolutely no reason to think that the bond market will respond to OBR forecasts in a more important way than any other financial news. Also, cruelty won’t earn you market credibility.
The lack of charity responses on why the adult responses of the decision not repeated until October was what made it politically convenient to suggest that the Prime Minister was forced to cut disability benefits to maintain financial credibility. In that case, it involves deliberate deception. To see why we need to briefly look into what has changed between the present and October last year.
Yesterday’s OBR forecast included assumptions about outcomes, as well as over-expenditure. Below is a chart of yesterday’s OBR’s public sector receipts (“taxes”) and forecast paths for gross public spending (i.e. current spending and depreciation, CE+D labeled CE+D). Looking at GDP stocks has many advantages, including abstracting from the main effects of actual growth and inflation changes.
The “golden” fiscal rules, which state that forecast taxes must be comparable to current planned spending, means that two rows must be met by the end of the forecast period. They do so primarily to cut their spending, not only high taxes. The current percentage of spending, including depreciation of GDP for 2029/30, is 41.4% compared to 42.1% in the previous Conservative Government’s last closing year. In my book, there is a reduction in spending when I discuss it.
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Below is the same chart from OBR’s budget forecast.
It’s the same pattern, but in October both lines ended up on top, not 42% of GDP. What has happened in the last six months is that tax forecasts have fallen, and the government has reduced its spending plans to meet fiscal rules. The government chose to respond to low tax forecasts by reducing public spending rather than increasing some tax rates. It’s a political choice. [1]
I think some of the reasons why people don’t like what happened are missing the point. It is not here that we will make predictions rather than government, as the Ministry of Finance forecasts reflect similar developments in public finances. (I was there, I saw it.) It is unfortunate that the financial plan reacts to very uncertain forecasts, but can we compare our spending plans with future taxes other than our forecasts? You certainly don’t want to tie your current spending to current taxes, but you will also allow future spending to drift away from the expected future taxes It’s not economically meaningless Either.
The main reason why lowering tax forecasts is wrong by reducing payments to people with disabilities and thus significantly increasing poverty is because of the political choices it reflects. Otherwise, the Prime Minister doesn’t need to make these cuts, as she won’t meet the fiscal rules. She makes these cuts because she chose to use this method rather than many other methods available to meet these rules. In particular, she chose to increase the difficulties and poverty of some of the most vulnerable people in society, rather than raising taxes on those who could afford it easily. Doing this yesterday did not represent adult and responsible fiscal policy.
[1] This underestimates the squeeze of sector spending between October and the present due to an increase in overall spending Higher interest rates on government debt.
