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Fiscal rules and knock-about politics don’t mix

The reason for having fiscal rules is being lost.

The news is full of the arguments about the vote on the Charter for Budget Responsibility. In all the noise, the reason for having fiscal rules in the first place is being lost – these are about providing clarity, and the more they are used as pure political weapons the more worthless they become.

Which way will they vote? Will that change again? And would it matter at all whatever they did? Exciting questions no doubt, in relation to the Labour Party and the Chancellor’s new Charter for Fiscal Responsibility. But what is actually happening today has been rather lost in the coverage. The BBC website yesterday was talking about George Osborne’s “Bill” and making it “illegal” for future governments to spend more than they have.

As followers of the Institute for Government’s work will know, there are good reasons to be dismissive of any such ’declaratory legislation‘, used to make a point that cannot be enforced. Just look at this government’s Welfare Reform and Work Bill, which is currently proceeding through Parliament. A chunk of this is undoing the Labour Government’s legislation to abolish child poverty by 2020. Legislation, and Parliament’s time, has been taken up achieving absolutely nothing.

However, despite the coverage, the Government is not trying to pass declaratory legislation today. Instead it is just following the 2011 Budget Responsibility and National Audit Act, which requires it to set out its fiscal policy and get parliament to approve it. And in this respect, the 2011 Act is identical to Gordon Brown’s 1998 Finance Act, which likewise required parliamentary approval for the Government’s fiscal policy. This process will not “make it illegal” for future governments to do anything, any more than the 2010 Coalition was bound by the previous Labour policies. Any new government will simply set out its own fiscal policy and have this approved by a new parliament.

So it’s all just a row about nothing? Well not really. It’s striking how many city analysts are, in private at least, dismissive of the UK’s fiscal rules. The latest bout of politicisation and confusion will have only hardened that assessment. Fiscal rules only serve a purpose if they are credible. In the good times (and these are relatively good times) this does not matter. But in the bad times it really does. Both the Government in laying political traps, and the Opposition in generating huge confusion, are busily burning the fiscal rules part of the roof while the sun is shining. We may all come to regret this.

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