Labor plans 'budget lock' to prevent a repeat of Truss-era market turmoil

Labor leader Sir Keir Starmer and shadow chancellor Rachel Reeves set out their vision on the London Stock Exchange. Photo: Stefan Rousseau, PA

Labour has vowed to change the law so every major tax and spending decision is reviewed by Britain's financial watchdog to avoid repeating Liz Truss's «catastrophic mistakes.»

Rachel Reeves, the shadow chancellor, said her party would propose new legislation to ensure any major changes were scrutinized by the Office for Budget Responsibility (OBR).

It comes a year after Ms Truss spooked markets with her mini tax cut budget by refusing to publish OBR forecasts along with her plans.

Ms Reeves said Labor would introduce a «fiscal lock» under which ministers would be legally bound consult with the supervisor on ongoing tax reforms and spending reforms above a certain threshold.

The OBR will then have the power to independently publish its own impact assessment.

This will prevent, according to the shadow chancellor, a repeat of the “turmoil” that has gripped markets under Ms Truss's leadership.

The OBR will not “shut up” mouth»

«I say we won't let this happen again because the OBR will not be silenced,» she told BBC Radio 4's Today programme.

«We will implement this charter into legislation, and MPs will vote on it, and then we will ensure that in the future there is always a forecast when drawing up budgets.”

Ms Truss responded by warning that Labour's plans would saddle the UK with even more bureaucracy.

Chancellor Kwasi Kwarteng then unveils the Trass mini-budget, which has “scared the markets”. in 2022 Photo: Jessica Taylor/British Parliament

“I can’t believe that Labor thinks Britain’s problems will be solved by bigger government and even more powers for the quangos,” she said.

“Hard-working people” and business – free from government regulation, taxes and debt — will help Britain grow again, not more bureaucrats in London.»

Boris Johnson also considered implementing his first Budget without publishing OBR forecasts, according to a new book by The Daily Telegraph's political editor Ben Riley-Smith.

The revelation is contained in The Right to Rule, which delves into the history of the Conservative government since 2010 through interviews with more than 120 key figures.

The proposal to ignore the OBR was rejected by Sajid Javid, Johnson's then chancellor.

The proposal to ignore the OBR was rejected by Sajid Javid, Johnson's then chancellor.

The proposal to ignore the OBR was rejected by Sajid Javid, Johnson's then chancellor.

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The book says: “Johnson and his chief adviser Dominic Cummings put forward an attractive proposal: why not just NOT forecast the OBR? The idea was voiced by the Prime Minister himself at one of the last meetings to discuss the package. “Can’t we just not worry about the OBR?” Johnson asked Javid. Johnson's office has denied the claims.

Reeves' 'stability mission'

Ms Reeves said her «mission» as chancellor would be to «bring stability back to our economy» because » this is the only way to ensure growth.” «Never again will the Prime Minister or Chancellor be allowed to repeat the disastrous mistakes of last year's mini-budget,» she said.

“Labour will introduce a new fiscal lock to strengthen the UK's financial stability and prevent the turmoil we witnessed this time last year. Work will bring stability back into our economy, and on this rock of stability workers will live better lives.»

The plans will allow changes without forecasts in the event of an emergency, but the OBR will be allowed to set a publication date for its work.

He tweeted:

We created the OBR 13 years ago so that chancellors could no longer tinker with numbers. A year ago we witnessed a fiasco when they tried to circumvent it. Reeves' OBR reforms are sensible and pragmatic improvements. If the Tories are smart, they will adopt them
https://t.co/QZCIVzMWlf

— George Osborne (@George_Osborne) September 22, 2023

Labor also said it would set a fixed timetable for annual autumn budgets, followed by a spring update in early March, to give families and businesses time to prepare for reforms ahead of the new tax year.

Major tax and spending decisions will be delayed until November, while only minor policy changes will be allowed in the spring.

Ms Reeves said: «This is a good international step.» The practice is that you set a budget date and stick to it.

“And setting a budget in the fall, rather than a few days or weeks before the new financial year, gives businesses, gives families, for example, the opportunity to plan any tax changes, so it's good international practice.”

Asked about the plans during a visit to the London Stock Exchange, Sir Keir Starmer said they were “essential.” because «a year ago the OBR offered to assess Liz Truss's mini-budget but she refused.»

«We can't let this happen again,» he said.