Liz Truss is planning to take emergency action to address the cost of living crisis without an accompanying economic forecast soon after becoming prime minister, according to allies in her team.
Even though the Office for Budget Responsibility, the fiscal watchdog, has let it be known it is ready to provide forecasts to inform the new prime minister’s thinking when elected on September 5, the frontrunner in the Conservative party leadership race is set to decline the offer.
Instead, Truss will include tax cuts, the elimination of green levies from energy bills and some targeted support for the vulnerable in an announcement that will be modelled on a statement made by former chancellor and fellow leadership contender Rishi Sunak on May 26.
In it, he offered support for energy bills and introduced a windfall tax without the independent fiscal watchdog producing an official forecast.
One Truss campaign insider said she would seek OBR forecasts later in the financial year “for a budget covering the whole economy” and added that it was “not necessary for a targeted fiscal event”, citing Sunak’s statement as a precedent.
Another Truss ally said she was unwilling to wait the usual 10-week period for the OBR to conduct its forecasts. “Both candidates face the same choice — taking immediate action or waiting 10 weeks for the OBR,” the ally said.
The memorandum of understanding between the Treasury and the OBR says that ministers need to give the fiscal watchdog 10 weeks’ notice to produce a forecast in normal times, but this can be cut in extraordinary circumstances.
The OBR has said it would be ready to produce a forecast immediately after the new prime minister takes office, but this would not contain the level of detail that it normally provides, especially on the public finances.
The Sunak team said Truss would be taking irresponsible risks with the public finances by not involving the OBR in any early package of measures.
Mel Stride MP, who chairs the Treasury committee and is a Sunak supporter, said Truss would be “flying blind” if she took measures to support households without a forecast from the OBR to ensure her plans were sustainable.
“It means that you do all these dramatic things on tax etc, but you don’t actually know what the independent forecaster believes the impact will be on the public finances. And I think that’s quite a serious situation were that to come about,” Stride told LBC radio on Monday.
Paul Johnson, director of the Institute for Fiscal Studies, said “it seems kind of normal” now to have major policies announced without accompanying forecasts and analysis, adding this was not a big problem in an emergency.
But he added that “when the tax changes are not just about immediate challenges, I’d like to see an assessment of the fiscal impact from the OBR”.
The government is required to ask the OBR to produce two full economic and public finance forecasts a year. Some economists backing Truss believe it would be better to have a full forecast later this year.
Julian Jessop, an independent economist, pointed out that the forecasts could be done at any time and did not have to be immediate. “Waiting until November, might make more sense,” he said, because it would give the OBR time to undertake a full forecast.
Even when parliamentary wrangles over Brexit caused a planned Budget to be cancelled in 2019, the OBR had to do two forecasts — two days apart — in March 2020 to fulfil the legal requirement to produce two forecasts a year.
In a statement, the Truss campaign said: “The cost of living crisis means immediate action is required. A Truss government would seek to act as soon as possible to help people across the UK, by cutting taxes and introducing a temporary moratorium on energy levies.”
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