News
Government introduces new Tax Freeze Law to provide economic stability and protect family finances
- New law to provide economic stability by ensuring no future government can sideline the Office for Budget Responsibility (OBR).
- Future fiscal announcements that make significant and permanent changes to taxes and spending will now be subject to an independent assessment by the OBR.
- This “fiscal lockdown” will repair the foundations of the economy, helping to protect household finances and creating the conditions for growth.
A new bill to bring economic stability and help protect family finances has been introduced to the House of Commons following the King’s Speech.
The new law means the Office for Budget Responsibility – the independent public finance watchdog – will have the power to make an independent assessment of any major tax and spending announcement, or series of announcements over a single financial year, that make permanent tax or spending commitments worth more than 1.0% of UK GDP, or around £30 billion.
The Budget Responsibility Bill will ensure that any major future fiscal announcements are subject to independent assessment, as a form of “fiscal lock.”
The growth plan set out in 2022, which announced £46bn of unfunded tax cuts, has led to an unprecedented rise in borrowing costs.
Rachel Reeves, Chancellor of the Exchequer, said:
The defining mission of this Government is to deliver economic growth. However, growth can only come through economic stability and a commitment to sound public finances, so never again can a government play games with public finances.
This new law is part of our plan to fix the foundations of our economy so we can rebuild Britain and improve every part of the country.
Emergency and temporary measures lasting less than two years will not require an OBR assessment, such as the response to the Covid-19 pandemic.
If the government wanted to announce fiscally significant measures but did not ask for a forecast from the OBR, the fiscal freeze would be triggered.
The legislation gives the OBR a new power to independently decide to produce a full fiscal forecast or assessment, at the OBR’s discretion, if it judges the lockdown has been triggered.
The OBR would alert the Treasury Committee to any breach and notify them of its intention to publish an updated assessment or forecast. Any fiscal event accompanied by an OBR forecast in the usual way would not be subject to the block.
Louise Hellem, CBI Chief Economist, said:
Market stability is a fundamental foundation for enabling economic growth and business investment. Ensuring that major changes in tax and spending policy are always subject to independent review by the Office for Budget Responsibility will give businesses and investors additional confidence in the stability of public finances.
Growth is the pressing issue of the day and repairing our economic foundations at home, as well as strengthening the UK’s position in the world, can rapidly turn around the country’s growth and productivity.
Notes to editors:
The complete legislation can be found at the website of the Houses of Parliament.
The draft text of the OBR Charter can be found on GOV.UK.