Robert Chote’s decade in charge of the fiscal watchdog is almost up, but he is not going quietly.
The Office for Budget Responsibility’s latest fiscal sustainability report is a molten, radioactive document full of news the Government doesn’t want to hear in the age of Covid-19. Indeed the instinctive reaction of the Chancellor and Boris Johnson might be to bury it under thousands of tonnes of concrete.
Look past if you can - hard though it is - terrifying forecasts such as the 3.5m unemployed under the OBR’s central scenario for the economy, or the £100bn-plus deficits the UK is likely to be saddled with well into the middle of the decade.
Coronavirus similarly threw the Government’s fiscal rules on the scrapheap months ago. Balancing the current budget in three years only looks possible under the watchdog’s rosiest scenario, but investment spending will soar above 3pc of GDP. The saving grace is plunging debt interest costs which, as the OBR suggests, is virtually the only thing keeping the show on the road.
Chote acknowledges that “the outlook would have been much worse without the measures the Government has taken”. But he also points out that Covid-19 comes on the heels of two years of belt-loosening, including a big settlement for the NHS in 2018, which put existing strain on the finances.
Even before the pandemic, debt to GDP was heading towards 300pc in the longer term. In the words of the Irishman asked the way to Dublin: “Well if I were you, sir, I wouldn’t start from here.”
But the deeper message from the former Institute for Fiscal Studies director to Rishi Sunak and the PM is that the “spend, spend, spend” ambitions of a post-Brexit Britain bring huge risks. He says low borrowing costs could “lull policymakers into a false sense of security” amid existing pressures from an ageing population and rising healthcare costs as ministers reach for their high-viz jackets and hard hats to get on with the “infrastructure revolution”.
Plus after two “once in a lifetime” shocks in the space of little more than a decade, the damage to the public finances is getting larger and more frequent, so “policymakers may need to re-evaluate what constitutes prudent policy during normal times”. Clue: that doesn't mean spend more.
Banking stress is also the “dog that hasn’t barked” in this crisis, largely to due state loan guarantees. But the OBR chairman adds it is “implausible” that they could ever weather a pandemic, leaving the taxpayer as an insurer of last resort: “The Government’s future fiscal strategy will need to take account of this risk.”
Even worse when the Government is looking to spend, the OBR raises the spectre of austerity to bring debt to GDP down to a more reasonable looking 75pc, involving tightening of about 2.9pc per decade. That’s smaller than after the financial crisis, but still adds up to a crimping of spending ambitions. With hardly any room on the monetary policy side to deal with future shocks, fiscal policy will be more of a prop to boot - so more caution is needed in the good times.
What’s helping keep the UK’s debt down is the strength of its institutions, like an “impartial civil service” and an “independent Bank of England”, Chote added. “That confidence is hard to build and all too easy to erode.”
As the Government embarks on its own Whitehall revolution, you didn't have to be a Kremlinologist to see what he was getting at.