Tuesday 23 June 2026 10:23 am
The Iran war has pushed gilt yields to multi-decade highs
Since the defenestration of Liz Truss, the OBR has become an obsession in British politics. It need not be this way. Independent fiscal institutions are supposed to inform politics, not rule it. Other countries use them as sources of transparency, not as judge, jury and executioner, says Helen ThomasThe next Prime Minister and Chancellor will face the same brutal arithmetic that has beleaguered Starmer and Reeves. The original sin of removing winter fuel payments offered a visible saving when, upon taking office, they chose to approve public sector pay rises whilst attempting to demonstrate fiscal discipline. Yet that one early decision had long-running ramifications. It framed the government as willing to impose pain on pensioners in the name of satisfying its fiscal constraints. The next occupant of Number 11 will face similar trade-offs from the first moment they walk into Downing Street. But a fresh start does offer an opportunity: not to pretend the constraints have vanished, but to reframe what they are for.It is perfectly possible to construct a different balance of tax, spend and borrow that still claims fiscal credibility. If higher public investment raises productivity, expands the tax base and improves long-term growth, then some of the borrowing may, in the jargon, “pay for itself”. The Office for Budget Responsibility would have to decide how much of that growth to recognise in its forecasts. Perhaps that is why Richard Hughes, the former OBR chair, has reportedly been advising Team Burnham, alongside the Labour peer and former Treasury minister Jim O’Neill. The latter suggested recently that “I don’t think you’d necessarily have to rip up the fiscal rules. I think you just need to be bolder about borrowing to invest.” Borrowing to fund day-to-day spending is distinct from borrowing for investment that plausibly raises the economy’s potential growth rate.
