Economic Affairs Committee

The Economic Affairs Committee question the Bank of England Governor on near-term inflation pressures from Gulf energy shocks, the likelihood and management of second-round effects, and longer-run growth drivers such as productivity, trade openness, and AI. Andrew Bailey emphasises the need for timely judgment rather than waiting for hard data, explains the Bank’s flexible remit, and outlines work on AI, data quality, cyber security, and financial stability. He also addresses the interaction of monetary policy with fiscal policy, reserves, and international coordination on AI risk and energy pricing.

This evidence session examined the scope, design and political feasibility of fiscal devolution in England. Paul Johnson, Provost of Queen’s College, Oxford, outlined that fiscal devolution encompasses spending and tax powers, with a spectrum of options from full local control to centralised directives. He argued devolution can improve local accountability, service integration, and growth, but warned that without robust equalisation and revenue-raising powers, it could worsen regional inequality. He stressed the need for a clear long-term plan (potentially a 10-year horizon), reform of local taxation to improve equity, and learning from Scotland, Wales, and Northern Ireland about feasibility and political constraints. The session did not identify formal government commitments, but Johnson advocated gradual, view-based steps toward greater devolution and emphasized accountability mechanisms to accompany expanded powers.

This session scrutinised the UK’s fiscal framework, focusing on stability, predictability, and the governance of fiscal rules. Key government commitments include maintaining non-negotiable fiscal rules, operating one major fiscal event per year, and assessing rules via the OBR once annually. The discussion covered the role and independence of the OBR, the alignment of headroom with stability and spending reviews, and expectations for long-term sustainability—including the sustainability report and the e-VED policy. The committee also addressed process integrity (leaks and information security), the timing and mechanism of forecasts (two forecasts with one annual event), and future OBR leadership. Together, witnesses and committee members explored how the framework supports investment, productivity, and public-service delivery while mitigating risk from debt and external shocks.

The Economic Affairs Committee questions Richard Hughes on the Office for Budget Responsibility’s (OBR) role within the UK’s fiscal framework, the relationship with the Treasury, and how long-term fiscal risks are identified and communicated. Hughes details the OBR’s track record on forecasting, transparency, and risk analysis, and explains key governance changes (eg, the fiscal lock) and political-economic pressures that shape fiscal policy. He highlights government commitments to transparency in departmental spending planning, notes that the spring forecast is not treated as a formal assessment of fiscal rules, and argues for greater headroom and parliamentary engagement on fiscal risks and long-term sustainability.

The Economic Affairs Committee questioned the Office for Budget Responsibility (OBR) on its role, governance, and the UK’s fiscal framework. Witnesses stressed the OBR’s statutory remit to assess sustainability of public finances, highlighted its transparency in presenting risks and uncertainties, and detailed how long-term sustainability analysis informs policy scrutiny. The session also covered the Budget process, relationships with the Treasury, and the design of fiscal rules (three-year horizon, stock vs. flow targets). Attendees pressed for clearer long-term framing, improved communication of probabilistic outcomes (headroom/ranges), and consideration of a fixed, sequenced Budget process. The witnesses underscored ongoing transparency, independence, and willingness to adapt methods (e.g., new 0.1% GDP supply-side threshold) while maintaining independence from government policy-making. Key government-stakeholder signals include adherence to the Government’s targets but recognition that the OBR cannot set policy, and that the fiscal rules sit with the Government, with the OBR assessing probability of meeting them. A spring Budget-focused analysis window was proposed to improve long-term sustainability communication.

This session of the Economic Affairs Committee examined the UK’s fiscal framework and the role of the Office for Budget Responsibility (OBR) through the testimony of three market participants: Rupert Harrison (Senior Adviser, PIMCO), Simon French (Chief Economist and Head of Research, Panmure Liberum), and Sanjay Raja (Chief UK Economist, Deutsche Bank). Key issues discussed included the OBR’s unique ability to translate macro forecasts into public-finances implications, the impact of fiscal headroom on market expectations and policy making, potential reforms to the forecasting cycle (one vs two forecasts per year), and proposals such as a “fiscal lock” to bolster fiscal buffers. The witnesses described the balance between discipline and growth, argued for preserving independence of the OBR, and suggested improvements to budget-process openness and long-run debt dynamics.