In the King’s Speech on 17 July 2024, it was confirmed that the new Labour Government aims to legislate that all significant tax and spending changes undergo independent assessment by the Office for Budget Responsibility (OBR). The following day, the Budget Responsibility Bill was introduced to the House of Commons for its first reading.
Labour initially proposed a fiscal lock in response to the Truss Government’s 2022 ‘Growth Plan,’ which included £46 billion in tax cuts. A briefing document accompanying the Bill suggests that the negative financial market reaction to the Growth Plan was partly due to the OBR not being asked to forecast or scrutinize the measures.
Key Provisions of the Bill
The Bill establishes a ‘fiscal lock,’ empowering the OBR to produce a comprehensive fiscal forecast or assessment of any ‘fiscally significant measures.’ These are defined as any single or series of announcements within a financial year that result in permanent tax or spending commitments exceeding 1% of the UK’s GDP (around £30 billion).
The Bill specifies that supplementary details about the fiscal lock can be outlined in the Charter for Budget Responsibility, which defines the OBR’s role and duties. To facilitate parliamentary scrutiny, a draft charter text has been released, detailing the operation of the fiscal lock.
Under the new fiscal lock, if the Government announces a measure not included in an OBR economic and fiscal forecast, the OBR can independently decide to produce a full fiscal forecast or assessment if it believes the lock has been triggered. In case of a breach, the OBR would notify the Treasury Committee and indicate its intention to publish an assessment or updated forecast.
Emergency measures lasting fewer than two years, such as responses to the Covid-19 pandemic, are exempt from the fiscal lock. However, HM Treasury (HMT) must justify the emergency alongside any such announcement, and the OBR retains the discretion to trigger the fiscal lock if it disagrees with HMT’s explanation.
In a letter to OBR Head Richard Hughes, Chancellor Rachel Reeves clarified that the fiscal lock does not alter the usual publication of OBR analyses and is not intended to increase the number of forecasts per financial year.
Legislative Progress
The second reading of the Bill took place on 30 July 2024, with the Committee of the Whole House scheduled to conduct a review on 4 September 2024.
Although the Bill appears to be expedited through the Commons, this speed is unlikely to have a practical impact. Given Labour’s introduction of this legislation and Reeves’ emphasis on the importance of the OBR’s role in providing independent and credible analysis, it is improbable that the OBR will need to activate the fiscal lock during this Parliament.
The draft Bill can be read here, and the accompanying briefing document here.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
