George Osborne explains Summer Budget 2015

The first reckoning for any Budget is when the Office for Budget Responsibility releases its estimates of the fiscal and economic impact of the measures. The second is when the Chancellor appears in front of the Treasury Select Committee and explains the reasoning behind the Budget. George Osborne’s Summer Budget appearance happened yesterday and shed light on a number of his more controversial fiscal policies. This is my summary of his answers, presented without comment. Read more

School choice and paternalism

There is a very interesting report out from the Social Market Foundation that investigates the characteristics parents value in a school. The core result is that less-wealthy families do not choose schools on the basis of academic achievement:

SMF_school_choice_2

This leads the SMF to express concern that school choice may not lift educational achievement because some parents do not consider it important. They then recommend Government intervention to promote the primacy of academic success. The line they’re treading between free choice and paternalism is a fine one. One the one hand, they want free school choice to improve the quality of schooling. On the other hand, they have a prescriptive view of what school quality means. Read more

Simon Wren-Lewis on the UK’s new fiscal rules

Simon blogs on the new fiscal rules and largely agrees with our view:

Getting the debt to GDP ratio to fall at some stage is a good idea, but having a target for a specific year is silly. It is not optimal because if some shock hits the economy before 2016/7 which means debt tends to rise relative to GDP, it is crazy to try and counteract that to meet the target in such a short space of time. It is not effective because it can be gamed by the government fiddling the timing of expenditures.

Having a five year rolling target for the deficit allows fiscal policy plenty of time to adjust to shocks. We saw this in action over the last few years, as the Chancellor was able to reduce the pace of fiscal consolidation from 2012 when the economy failed to recover as quickly as he had hoped. Changing this mandate from five to three years gives any Chancellor less time to adjust, which is why it is a backward step.

Why fiscal rules matter: sustainability

Before Christmas I wrote a couple of posts on fiscal rules and you might very well be asking why it really matters.

The first reason is that the current trajectory of public spending is unsustainable, but not in the sense that the Government means it. Sustainability in public spending should be measured over decades, not a single Parliament. The question is whether the current policy settings can be maintained indefinitely.

This is a chart of the UK’s debt-to-GDP over the past three centuries combined with the Office for Budget Responsibility’s latest long-run projections through to 2063-64. 1

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Notes:

  1. I have not used the OBR’s central projections here, which assume that health productivity more than doubles for the next fifty years. Instead, I have used the scenario that assumes productivity remains at historical levels.

The UK’s new fiscal rule won’t last

This post draws upon a blog I wrote for The Reformer.

A few days ago I wrote about the lessons that can be drawn from the recent history of the UK’s fiscal rules. This post measures the Government’s new Charter for Fiscal Responsibility against them. The Charter sets out the Government’s fiscal rule and requires the Office for Budget Responsibility (OBR) to assess Budgets against it. The new Charter lightly updates the previous version in two ways:

  1. It requires the Government to forecast a cyclically-adjusted, current account surplus within three years, rather than the previous five years.
  2. Public sector net debt should fall as a percentage of GDP in 2016-17, a year later than in the previous Charter.

Now compare against the lessons from history.
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