Ryan Bourne

BALLS Ed Spend canRyan Bourne is Head of Economic Research at the Centre for Policy Studies.

There’s a bit of a consensus developing that it would be a really good idea for the Office for Budget Responsibility (OBR) to be able to audit the “costings” of party manifestos. Last night the Shadow Chancellor Ed Balls wrote to the Chancellor George Osborne to urge him to pass a necessary amendment to the next Finance Bill so that the OBR can legally “provide independent scrutiny and certification of costings of political parties’ manifesto commitments on spending and tax, while ensuring the OBR is not drawn into party politics by commenting on the merits of individual policies or examining alternative policy scenarios.”

Treasury Select Committee Chairman Andrew Tyrie has suggested that he might be open to the idea, and many commentators have said it’s “a sensible move”.

It’s not clear as yet whether Balls means that the parties would be legally required to submit their manifestos for audit, or that they would just be embarrassed into doing so to show their “credibility”. Either way, the result would likely be all eligible parties having their policies audited.

So let’s think about this for a second.

How do you actually fully “cost” tax and spending policies? Often they depend on behavioural changes, expectations of future events, the effects on growth etc. Should the OBR then simply put all of the proposed tax, benefit and spending changes into its big model, with all its complexities and assumptions, and see what the costs are for each party? This is what I feared Balls was implying. It would inevitably lead to huge disputes over the assumptions the OBR makes, particularly on behavioural effects. It would be reliant on “fiscal multiplier” assumptions which are hugely contentious, as the recent debates have shown.

How would you “cost” something like, say, Trident? Would you estimate the insurance effect on the reduced probability of being attacked? Would you model things like immigration policies? Attempting to cost to the level of detail needed to provide the electorate with a realistic picture in a world of unknowns would be an attempt to bring certainty to debate when in reality there are huge uncertainties and trade-offs. Would it really be helpful in public debate then for a body of the state in this context to be proclaiming, with huge uncertainties, that one party would make GDP increase by X% with unemployment at Y%, and comparing this to party B? Do we really think the outcomes would be reported with all the caveats they would need?

Thankfully, forecasting isn’t what Ed Balls has in mind. According to Ed Balls adviser Alex Belardinelli on Twitter, the OBR’s role would simply be to audit costings and not to draw up fiscal forecasts:

This creates its own problems, though. It would by definition be incomplete, and would be very static more than dynamic. The Conservatives may think that dynamic modelling of tax cuts will show that they are far less costly, for example, whereas Labour may want to show the static effects. In other words, our understanding of policies is inherently linked to our views of how economies work – trying to nationalise an objective view is thus misguided and goes against the principles of our adversarial political system.

But more importantly, there’s little sign it would lead to better informed public debate. Think of this example: last year the OBR audited HMRC’s work on the “cost” of cutting the 50p tax rate to 45p, and signed off on the work that said the cut only cost £100 million as a best estimate (given behavioural effects etc). But the Labour party has since, including Ed Balls, continued to call this “a £3 billion tax cut”, suggesting they don’t go much on the OBR’s auditing skills. There have been similar disagreements about how much a mansion tax would raise.

I put this to Balls’ adviser, who said:

Well, exactly. And there would be huge uncertainties surrounding many other manifesto commitments, which is why the OBR shouldn’t be put on a pedestal and tasked with auditing them – in turn risking the credibility of its other functions.

But there’s a second institutional reason why conservatives should oppose this move on principle. The head of the OBR is appointed by a politician. Now, we might all be very pleased that Ed Balls trusts the current head of the OBR, Robert Chote, to undertake the work effectively. But what if in future politicians make far more controversial appointments?

Let’s imagine Ed Balls appointed Paul Krugman next time around. Or imagine the European Commission adopted the principle of manifesto review for all political parties in EU elections. I think it’s self-evident than many people are only sanguine about the possibility of this idea on the Conservative side of the debate because they trust the benevolence and impartiality (whatever that means) of the current people involved. But assumption of benevolence is not a sound principle on which to base effective institutional design.

Finally, it’s unclear why non-audited manifestos are now considered such a problem. In reality, the IFS already attempts the sort of work outlined here, and seems to have acquired credibility for their output. There’s nothing to stop political parties paying for the IFS or anybody else to run their numbers and give them a rubber stamp of approval.

The only rationale I can see from Balls’ perspective is that he thinks having his policies rubber-stamped by a state body set up by George Osborne would enhance Labour’s credibility with the public finances. He may well be right. But it’s unclear why improving the credibility of Ed Balls’ policies or any political parties’ manifesto pledges should be the duty of the taxpayer.

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