Law introduced to strengthen OBR and prevent repeat of Truss mini-budget

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Andrew Feinberg

White House Correspondent

A new law forcing ministers to consult the budget watchdog on major tax and spending changes will be introduced in the Commons on Thursday.

The Budget Responsibility Bill, announced in the King’s Speech, is designed to avoid a repeat of Liz Truss’s 2022 mini-budget which spooked investors and sparked a run on the pound.

The legislation means the Office for Budget Responsibility (OBR) will have new powers to assess “any single major tax and spending announcement, or series of announcements over the course of a single financial year, which make permanent tax or spending commitments worth more than 1.0% of the UK’s GDP, or around £30 billion”, according to the Treasury.

If ministers seek to unveil such measures without asking for an OBR forecast, the watchdog can rule that the “fiscal lock” has been triggered and publish a full fiscal forecast or assessment.

Emergency measures lasting fewer than two years, such as the response to the Covid pandemic, will not require an independent OBR assessment.

In the City on Thursday, Chancellor Rachel Reeves will say that the law will deliver economic stability, boost market confidence and protect family finances.

She said: “This Government’s defining mission is to deliver economic growth.

“However, growth can only come through economic stability and a commitment to sound public money so never again can a government play fast and loose with the public finances.

“This new law is part of our plan to fix the foundation of our economy so we can rebuild Britain and make every part of the country better off.”

Louise Hellem, chief economist at the CBI business group, said: “Ensuring large changes in tax and spending policy are always subject to an independent assessment by the Office for Budget Responsibility will give businesses and investors additional confidence in the stability of the public finances.”

The Bill – one of the first from the King’s Speech to be introduced – comes less than two years after then-Conservative prime minister Ms Truss and her chancellor Kwasi Kwarteng’s £45 billion spree of unfunded tax cuts.

One of the reasons the markets were so spooked by their mini-budget was that the pair refused to publish the OBR’s independent forecasts for the public finances alongside the plans.

After Mr Kwarteng announced the plans, markets panicked, triggering a run on sterling, gilt market freefall and soaring mortgage costs.

Labour first mooted the Bill in 2023.

It said on Wednesday: “The ‘fiscal lock’ is intended to capture and prevent those announcements that could resemble the disastrous Liz Truss ‘mini-budget’, announced on 23 September 2022, which would have cost £48 billion per year by 2027/28, and was not subject to an OBR forecast and damaged Britain’s credibility with international lenders.”

Ms Truss hit back by accusing officials of breaching the civil service code by including “personal and political attacks” on her in Government documents about the King’s Speech.

In a letter to the head of the civil service, Simon Case, she urged him to “ensure suitable admonishment for those responsible” and to immediately remove the “political” material from the document.