Skeletons in the Fiscal Cupboard

The incoming government has announced the creation of an Office for Budget Responsibility - a 3 person committee headed up by Sir Alan Budd and given the task of providing independent economic forecasts for the Treasury as it prepares budget statements and other public spending reviews. This is quite an important step if not perhaps on the same scale of surprise and excitement as May 1997 when Gordon Brown surged into the Treasury and made the Bank of England independent!

Most new governments savage their economic inheritance and the new coalition has wasted little time in leaking to the press that the fiscal hole they took over last week is proving bigger than expected. In the Sunday Times the new Business Minister Vince Cable was quoted as saying that the fiscal numbers on first glance look significantly worse that anticipated. It seems that the government is paving the way for a steep reduction in government spending and increase in the tax burden. The “Emergency Budget” on the 22nd June promises to be an explosive event! Ideally placed just three days before the main A2 macroeconomics exam!

Here is a brief excerpt from the Independent

“Reports yesterday suggested that ministers were concerned about commitments entered into by their Labour predecessors including:
:: A £13 billion defence contract for tanker aircraft;
:: Some £240 million of school building contracts signed off weeks before the General Election;
:: A “crisis” in the student loans company;
:: A failure to account for the multi-billion-pound cost of decommissioning nuclear power plants; and
:: A £600 million computer contract for the new personal pensions scheme.”

More here on the new Office for Budget Responsibility