IFS Response To New Government's Fiscal Lock

19th July 2024

Ben Zaranko, Senior Research Economist at the Institute for Fiscal Studies said, "The new government's ‘fiscal lock’ is broadly sensible but largely performative. It is, in effect, a rather theatrical way of promising not to do another Mini Budget - or at least not to do another Mini Budget without some accompanying independent analysis from the Office for Budget Responsibility.

This Chancellor could make and keep to that promise without any need for primary legislation, and some future Chancellor determined to misbehave could almost certainly find a way to get around it, but it nonetheless serves as a welcome commitment to fiscal transparency.

The main impact of the bill, if there is one, will be to modestly increase the powers of the OBR vis-à-vis the Treasury. Policy announcements with a total gross fiscal impact of more than one per cent of GDP since the last fiscal event will, unless judged to be temporary and in response to an emergency, give the OBR the option of producing an assessment of the impact and an updated set of forecasts – they will no longer need to be commissioned.

It will be left to the OBR to do the judging of whether the policy is genuinely temporary and whether we are in fact in an emergency. Some events – the global financial crisis or the outbreak of Covid, for instance – are clear and obvious emergencies.

Others – a shallow recession, a spike in energy prices, a ‘climate emergency’ – could be more contestable. Ultimately, though, even if the OBR decided that we weren’t in an emergency after all, all this would trigger is the publication of a new set of forecasts. The Bill represents only a modest change."