By Tash Shifrin
19 November 2009
The government’s move to enshrine in law its commitment to slash the public deficit has come under fire from economists and experts.
The Fiscal Responsibility Bill, announced in the November 18 Queen’s Speech, would give a statutory basis to the government’s pledge to halve the deficit over four years and put debt on a sustainable path in the medium term.
Legislation, to be set out alongside the chancellor’s Pre-Budget Report on December 9, would create a duty to meet these targets. It would also give Parliament powers to approve multi-year fiscal plans.
But Gemma Tetlow, senior research economist at the independent Institute for Fiscal Studies, questioned whether this made the government’s intentions ‘any more credible’.
‘The concept of it as a law is strange,’ she told Public Finance. ‘There is usually a penalty for breaking a law, but it’s hard to say what that might be. There really aren’t any sanctions that can be applied on a chancellor or government if they fail to meet it, with the exception of embarrassment. It might be more credible if they set out their plans on spending.’
This would mean setting out the total departmental spending and giving a date for the next Spending Review, she said.
Tony Travers, director of the Greater London Group at the London School of Economics, told PF the legislative move was ‘a sad attempt to get over the fact that no-one trusts anything politicians say’.
He poured scorn on the proposed fiscal Bill. Such a law was ‘of course not’ practicable in times of economic crisis, he argued. ‘Imagine if there’s another banking crisis. Do you think the government would stick to it?’
Professor Colin Talbot of Manchester University Business School said the fiscal law was ‘really a statement to the markets’ to reassure them that the public finances would be kept under control. It would be ‘difficult to renege on that once it was put into legislation without affecting the markets’, he said.
Talbot welcomed the move to put multi-year fiscal plans before government. This was ‘a big change’, as Spending Reviews did not currently need MPs’ approval, he said. ‘The crucial thing will be if they give Parliament a chance to consult, debate and if necessary amend it before it’s approved.’
Travers noted that other Queen’s Speech measures, such as the Children, Schools and Families Bill and secondary legislation on NHS waiting times, were also aimed at embedding ‘entitlements’ in legislation.
‘Trying to create legal or quasi-legal requirements that the government does something, or to attempt to lock future governments into doing things, is an attempt to signal to the public that it is willing to submit itself [to a formal duty] and therefore can be trusted.’
The Queen’s Speech also included a Financial Services Bill to create a Council for Financial Stability.
19 November 2009
The government’s move to enshrine in law its commitment to slash the public deficit has come under fire from economists and experts.
The Fiscal Responsibility Bill, announced in the November 18 Queen’s Speech, would give a statutory basis to the government’s pledge to halve the deficit over four years and put debt on a sustainable path in the medium term.
Legislation, to be set out alongside the chancellor’s Pre-Budget Report on December 9, would create a duty to meet these targets. It would also give Parliament powers to approve multi-year fiscal plans.
But Gemma Tetlow, senior research economist at the independent Institute for Fiscal Studies, questioned whether this made the government’s intentions ‘any more credible’.
‘The concept of it as a law is strange,’ she told Public Finance. ‘There is usually a penalty for breaking a law, but it’s hard to say what that might be. There really aren’t any sanctions that can be applied on a chancellor or government if they fail to meet it, with the exception of embarrassment. It might be more credible if they set out their plans on spending.’
This would mean setting out the total departmental spending and giving a date for the next Spending Review, she said.
Tony Travers, director of the Greater London Group at the London School of Economics, told PF the legislative move was ‘a sad attempt to get over the fact that no-one trusts anything politicians say’.
He poured scorn on the proposed fiscal Bill. Such a law was ‘of course not’ practicable in times of economic crisis, he argued. ‘Imagine if there’s another banking crisis. Do you think the government would stick to it?’
Professor Colin Talbot of Manchester University Business School said the fiscal law was ‘really a statement to the markets’ to reassure them that the public finances would be kept under control. It would be ‘difficult to renege on that once it was put into legislation without affecting the markets’, he said.
Talbot welcomed the move to put multi-year fiscal plans before government. This was ‘a big change’, as Spending Reviews did not currently need MPs’ approval, he said. ‘The crucial thing will be if they give Parliament a chance to consult, debate and if necessary amend it before it’s approved.’
Travers noted that other Queen’s Speech measures, such as the Children, Schools and Families Bill and secondary legislation on NHS waiting times, were also aimed at embedding ‘entitlements’ in legislation.
‘Trying to create legal or quasi-legal requirements that the government does something, or to attempt to lock future governments into doing things, is an attempt to signal to the public that it is willing to submit itself [to a formal duty] and therefore can be trusted.’
The Queen’s Speech also included a Financial Services Bill to create a Council for Financial Stability.
