22 July 2005
Economists and opposition politicians are demanding that the government's fiscal policy be assessed by an independent body and based on statistics free from suspicion of political interference, after the chancellor this week redefined the economic cycle.
Gordon Brown's decision on July 19 to move the start of the current economic cycle from 1999 to 1997 – increasing the chance of meeting his 'golden rule' by including an extra £12bn of budget surpluses – has infuriated his critics.
The rule, which says that the government may borrow only to invest over an economic cycle and that current spending must be funded by tax receipts, is the cornerstone of Brown's reputation for prudence.
But independent experts have expressed their scepticism over the economic justification for the move and said it graphically illustrated the need for such decisions to be placed in the hands of an independent panel or body beyond the reach of government.
Doug Godden, head of economic analysis at the CBI, told Public Finance that the Treasury's ability to act as both 'judge and jury' on its own performance must end. Fiscal policy needed to be put on the same footing as monetary policy, overseen by the Bank of England, Godden said.
Brown justified the redefinition of the economic cycle by claiming that it was in response to revisions to economic data earlier this year by the Office for National Statistics.
But Godden said: 'What is odd is that having always said the beginning of the cycle was 1999, the Treasury is now saying it is 1997. The revised economic data is not significant enough to justify revising it at this stage. We can't help feeling that the motivation is political, rather than economic.'
Godden warned that the need to tighten fiscal policy by raising taxes and cutting back on public spending had merely been deferred rather than removed. But he said the decision to delay next year's Spending Review until 2007 and to conduct a root and branch review of public spending beforehand, also revealed by the Treasury this week, would allow more time for tough decisions about spending to be taken.
But Martin Weale, director of the National Institute of Economic and Social Research, warned that the revision was likely to harm the government's fiscal credibility in the future.
'We consider that the golden rule… should be replaced by an independent expert assessment of whether the current budget is expected to be in balance or surplus in the medium term,' he said.
Shadow chancellor George Osborne was more forthright in his condemnation of the chancellor's decision. 'This manoeuvre destroys the credibility of the golden rule and demolishes once and for all Brown's reputation for competence,' he said.
The controversy came just days after there were renewed calls for the current framework governing the collation of economic data and other government statistics to be radically overhauled, to guarantee its independence.
The Statistics Commission is calling for the national statistician, who runs the ONS, to be given control over all statistics produced by government departments, rather than just those it produces.
It also wants an independent commission, answerable to Parliament, to be set up with the power to ensure that all government departments comply with a statutory code of practice.
Commission chief executive Richard Alldritt told PF that more robust arrangements were needed to ensure that official statistics were free from suspicions of political interference.
'Transparency is absolutely critical,' he said. 'These arrangements would give the public confidence that revisions are being made in the public interest and not in the short-term interests of the administration.'
But Len Cook, who steps down as national statistician next month after five years in the role, told PF that statutory independence would not be a panacea.
'Anyone who thinks that legislation is the great saver, and life will change the day after an Act is passed, is wrong,' he said. 'We have to concentrate on improving the public standing and role of statistics and statisticians.'
Cook was speaking at the formal launch of the ONS's new Centre for the Measurement of Government Activity on July 19, which has been set up to find more robust ways of producing statistics on the public services.
It has an external advisory panel whose members include Robert Chote, director of the Institute for Fiscal Studies, Sir Tony Atkinson, who conducted the review of government productivity last year, and David Wroe, former deputy director of the Central Statistical Office.
Cook said the panel would provide peer review 'looking at what we do, challenging what they think we're doing wrong and forcing us to explain ourselves'.
PFjul2005
