Theme: Political Economy | Content Type: Blog

A Hapless Government Produces an Unlikely Hero

Deborah Mabbett


Jayden So

| 12 mins read

Among the many unpleasant features of British politics since the Brexit vote have been the persistent attacks by Conservative politicians on the country's independent public institutions. The BBC and the Supreme Court were perhaps the most high-profile targets, but we have also seen the Parliamentary Commissioner for Standards undermined and criticised. And if the Civil Service ever thought that it was an independent public institution, it has learned that it is not.

It has been hard for these bodies to defend themselves in the face of the Conservatives’ populist embrace of the claim that a mandate from voters trumps everything else. It is easy to portray senior officials and judges as part of a stuffy and out-of-touch elite. The public, it often seemed, shared the idea that elected representatives have the right to do whatever they were supposedly elected for, despite the ambiguities that surround any election mandate.

Then came the short-lived Truss government with its ill-fated mini-budget. One of its remarkable achievements was to elevate the Office for Budget Responsibility (OBR) from dull forecasting body to central pillar of fiscal responsibility. The OBR is an unlikely hero. It is relatively young: its first forecasts were produced in 2010 at the request of then-Chancellor, George Osborne. Unsurprisingly, Osborne's motives were opportunistic. One of the factors limiting the traction of the fiscal rules favoured by Gordon Brown was that they could be tweaked with optimistic forecasts. Osborne recognised that independent forecasts would protect the government from accusations of gaming the fiscal numbers, even if the forecasts then turned out to be wrong, as they often do.

The OBR's first years were not particularly distinguished. Its first forecasts for economic growth were too optimistic, making the fiscal numbers look better than they were. This could be put down to the vagaries of forecasting, but it is also arguable that the errors were made because the OBR was reluctant to say that Osborne's austerity was damaging the economy. Subsequently, there were issues with modelling the revenue side of the forecasts, again producing upward biases, and critics accused the OBR of giving the government too easy a time. However, when the permanent secretary to the Treasury described the OBR in 2015 as ‘not a fantastic forecaster’, its director was unperturbed. There were no fantastic forecasters: there was always uncertainty.

Basically, the art of being an official forecaster was to take a mainstream view, not coming out too far away from other forecasters and not springing any major surprises. For this modest enterprise to become controversial required politicians who did not accept mainstream economics. Brexit brought early signs that major deviations from the mainstream might be found on the political right rather than on the left. Brexiters challenged parameters that economists thought were facts, such as the effect of distance on trade. The OBR stuck stubbornly to conventional views and showed signs of becoming a bit of a nuisance. In 2020 there were a few waves in the Whitehall teacup when Sunak, as Chancellor, failed to provide the advance details about his summer statement that would usually have enabled the OBR to draw up its Fiscal Sustainability Report. But the waves did not spill over into financial market reactions. This was the Covid era of fiscal policy, when the annual budgets of normal times were replaced with new fiscal statements for every season, envisaging massive deficits, in many developed countries.

With hindsight, the OBR's verdict on the government's exit from austerity in 2020 seems moderate. It noted that the target of fiscal balance had been pushed out a few more years, but still allowed that the target might be met. Its warnings were framed in the language of risk and uncertainty: at some point, some combination of inflation and higher interest rates was likely to occur, and this would rapidly change the arithmetic on funding the existing stock of government debt. Clearly, this was happening by the summer of 2022, during the long weeks in which the contenders for the Conservative leadership were making their pitches to their tiny audience. Late in August the OBR wrote to MPs to indicate that it could be ready with a forecast for the post-accession emergency budget that the Truss campaign was promising.

It was not unlawful for Truss and Kwarteng to proceed with the mini-budget without an OBR forecast. But the authority of independent public institutions does not derive from the law, which in any case can be changed. Rather, as Susanne Lohmann argued, their authority derives from their audiences: specifically from the punishments those audiences can trigger. Financial market actors are clearly a particularly dangerous audience. Their complex and decentralised interactions mean they have a capacity to trigger punishments that even harm themselves, although somehow they generally turn out to be less harmed than everybody else.

What wider lessons can we draw from this episode about the authority of independent public institutions? One possible answer is: none. Not only do financial actors have unique properties, but also the exclusion of the OBR might not even have been the key trigger event in the runs on the pound and government debt that occurred in late September. It is arguable that market actors took fright, not at the absence of a forecast, but at the scale of the folly of the government's measures, which they were perfectly capable of calculating for themselves.

This is plausible, but we can tell a different story. We have learned since 2008 that financial markets, for all their ‘masters of the universe’ bluff and bluster, are highly dependent on the stabilising actions of governments and central banks. Furthermore, those actions have sometimes gone way outside normal constraints: exceptional measures have been taken to respond to exceptional times. One effect is that no one really believes in fiscal and monetary policy rules anymore; rather, confidence and credibility have had to be generated by discretion and judgment. This means that the structures of decision making are given exceptional importance: witness financial markets’ remarkable attachment to the institution of independent central banking. By rejecting the offer of an independent forecast, Truss and Kwarteng made it clear that, not only did they really believe in inducing growth through tax cuts, they also knew that others dissented and they were determined to stifle that dissent. They sought to remove a check and balance that would restrain fiscal radicalism, and this was potentially more important than the radical actions themselves.

Clearly, this is a thoroughly institutionalist argument: it implies that how a decision is made can be more important than the content of that decision. Furthermore, it is an anti-radical argument: it proposes that making decisions in established ways is, on the whole, a good thing and seen as such by key audiences. From this perspective, we can see Brexit as a massive exercise in the destruction of institutional checks and balances: the replacement of tedious processes of negotiation and compromise with the radical promise of national sovereignty. Furthermore, successive Westminster governments since 2016 have been intent on putting in place the thinnest possible structures of decision making, removing obstacles to the exercise of centralised executive power wherever they see them, in the name of the voice of the people, expressed through skimpy electoral mandates.

We are still left with the problem that only financial market audiences seem to be capable of protecting the institutions they care about by imposing punishment on those who would undermine them. If only the Supreme Court could cause an economic crisis when it is bullied, or the Parliamentary Commissioner for Standards add a few points onto interest rates! We do occasionally witness a dawning realisation in government that attacking institutions can be costly: that they are sometimes useful, as well as sometimes annoying. During Covid, the government discovered that a trusted public service broadcaster could be valuable and, more generally, that adoption of a pick-and-mix approach to state authority could undermine its own policies, but it is not yet clear how well that lesson has been learned.

There are some possibilities for inflicting audience costs outside the financial sector. Creating focal points may help. A stout effort has been made to turn lying to Parliament into a focal point for the wider campaign to uphold standards in public life. The public at large might not have paid much attention, but Johnson's dissembling did in the end trigger punishment from weary Conservative MPs and ministers.

Indeed we can go further and say that the battle for the soul of the Conservative Party has turned into a battle over the protection of public institutions. It is apparent with hindsight that leaving the EU was taken by some Conservatives as an invitation to a free for all. A government with a majority could do anything: abandon human rights commitments, renege on international agreements, override courts and stamp out protest, as well as grow money on trees. This has been a recipe for disaster within the Conservative Party, as it removed constraints on the range of policies that could be proposed and helped the party to lurch far to the right of the electorate. The Conservatives need to rediscover their respect for public institutions to bring their party back onto electable ground.

There are uncomfortable lessons here for anyone who would like to see a transformative Labour government in power. It is discomforting to have the financial sector as an ally, in effect forcing the reversal of tax cuts that would have trapped a future Labour government with an inadequate revenue base. It is even more discomforting to find that the extreme right can be as vigorous in attacking the Establishment as the radical left ever sought to be. But public institutions don't have to be white, male and unaccountable: indeed plenty of them already are not, including many parts of local and devolved government. As the Conservatives implode, Labour has an opportunity to advocate a return to liberal democracy from the country's flirtation with crude majoritarianism. Surely a weary electorate would welcome a programme to restore a semblance of order and predictability in government, and this starts with reinvigorating the country's public institutions.

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  • Deborah Mabbett

    Deborah Mabbett

    Deborah Mabbett is Co-Editor of the Political Quarterly journal. She is also Professor of Public Policy at Birkbeck, University of London.

    Articles by Deborah Mabbett