?Emergency?-version Osborne is being replaced today. As he said last week: ?The mission of this year?s Budget will be to move from rescue to reform.? When he hits the dispatch box, the Chancellor will have a chance to reveal more of his true character ? his reformist self.
The big question is whether he shapes up to be the fiscal libertarian he is so often presented as. Will he stand back, and trust business to fill the hole left by Government? Or will he try to tinker, try to micro-manage policy? The temptation to interfere must be overwhelming now that he?s tied his hands on the bigger picture, having set in stone the shape of the public finances for the next five years.
What business wants from his ?Budget for Growth?, though, is a hands-off approach with long-term policies and visibility. Osborne has started well ? abolishing the pre-Budget Report introduced by Gordon Brown that ultimately let him to change policy every six months. Success today will be measured not by how many growth initiatives he unveils but by how he strips away obstacles to enterprise, starting with simpler taxes and less bureaucratic planning rules.
Another of his early successes was the creation of the Office for Budget Responsibility. Today will be the first real test not only of Osborne?s true colours but also of the independent public finances watchdog. At last June?s Budget, the ?interim? OBR was barely a month old. By November?s economic and fiscal outlook, with the formidable former Institute for Fiscal Studies director Robert Chote installed, it was cutting its teeth. Tomorrow it takes it first real steps as an independent adjudicator.
The OBR is far from perfect. It uses the Treasury model to build forecasts and the whole process can resemble a carousel ? as economic estimates are passed back and forth between the OBR and officials at 1 Horse Guards Road. But it?s a vast improvement on what went before, when the Chancellor was allowed to predicate his spending plans on fantasy figures.
Take Alistair Darling?s first two Budgets. In March 2008, with the financial crisis gathering steam, the Treasury expected growth in 2008 of 2pc, followed by 2.5pc in 2009, and 2.75pc in 2010. In 2009, in the midst of a recession, it forecast a 3.25pc decline, followed by 1.25pc growth in 2010 and 3.5pc growth this year ? a short painless downturn with a rapid bounce back.
Ultimately the economy contracted by 0.1pc in 2008 and 5pc in 2009. It returned to growth last year, of 1.4pc, and the consensus is for growth of 1.9pc in 2011. But the OBR doesn?t expect UK to rise back above 3pc at all before 2016.
Even the OBR?s conservative numbers, of 2.1pc this year and 2.6pc next, are now considered optimistic. Chote?s first real test will be the scale of his growth downgrades. Then there are the OBR?s debt and deficit forecasts, which may turn out to be better than thought for 2010 but are widely expected to be worse than its November predictions for subsequent years. The OBR has the mandate to make the Chancellor?s life very uncomfortable.
The OBR?s key contribution, though, has been transparency. The inputs into its forecasts are visible for all too see, from what it believes will happen to house and oil prices to unemployment and the borrowing costs on government debt. Hence they have to be defendable. If its forecasts are overly optimistic, the whole world can see why ? making a downgrade to more realistic levels inevitable. The Treasury previously hid its inputs from view. Such transparency alone delivers a degree of credibility on the public finances that markets can only applaud.
Two reputations will be under scrutiny today. That of our ?stainless steel? Chancellor and the numbers man whose job it is to make the Chancellor?s life more difficult than he?d like it to be.
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