Economy  

Chancellor warned against 'flying blind' in emergency budget

Chancellor warned against 'flying blind' in emergency budget
 

The Treasury committee has asked the chancellor for assurance that any emergency budget will be released alongside an economic forecast from the Office for Budget Responsibility.

In a letter today (August 23), chair of the committee, Mel Stride, asked Nadhim Zahawi to confirm if the Treasury has begun work with the OBR to provide an economic forecast.

OBR economic forecasts are normally released alongside budgets, with the government body normally requiring 10 weeks' notice.

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However, given the severe economic uncertainty facing the UK’s economy, the OBR has previously said it is ready to provide forecasts for an emergency budget if one were planned soon after the new Conservative party leader is elected on September 5.

In the letter, Stride voiced his concern at the potential impact of an emergency budget released without an accompanying economic forecast, which the committee said should include all changes to government policy and economic and fiscal data up until the point the new leader takes over.

Even if there is no emergency budget, Stride said, any significant fiscal event requires “transparency and reassurance” to the markets on the health of the nation’s finances.

“Whether such an event is actually called a budget or not is immaterial,” Stride added.

“The reassurance of independent forecasting is vital in these economically turbulent times. To bring in significant tax cuts without a forecast would be ill advised," he said.

“It is effectively 'flying blind’.”

Stride requested the Treasury confirms it will give the OBR all the necessary assistance to enable it to provide the forecasts.

Stride also wrote to Richard Hughes, the chair of the OBR, asking what work the OBR is currently doing to prepare economic and fiscal forecasts, and what help the government has given it.

Stride said it would be useful for the Treasury committee to know the costings of any new measures announced by the incoming prime minister, and requested a reply from the chancellor and head of the OBR by Friday (August 26).

Truss's plan to decline

It was reported yesterday (August 22) that Liz Truss, the current frontrunner in the race to be the new PM, plans to decline the OBR’s offer of a forecast in September if she is elected to lead the Conservative party.

The Financial Times quotes a Truss campaign insider who said the foreign secretary will seek OBR forecasts later in the year, rebuffing the body’s position that it is necessary for all fiscal events. 

Truss has previously said she will rely on tax cuts to assist the UK through a rapidly worsening cost of living crisis, which threatens to put the finances of millions of households under extreme pressure.

Inflation, which has overshot the Bank of England’s 2 per cent target for over a year, is set to rise to between 13 per cent and 18.6 per cent in January, according to the BoE and Citi respectively.