Belfast Telegraph

Departure of Budd hardly bodes well for new coalition

By David Prosser

The coalition is not having much luck with those it had hoped would do the heavy lifting work, as it battles to cut the deficit.

First, David Laws, the Liberal Democrat “born for the job of Chief Secretary to the Treasury” was forced to quit within weeks of taking office.

And now, Sir Alan Budd, the head of the Office for Budget Responsibility (OBR), the independent forecaster that George Osborne hoped would provide all the cover needed for his spending cuts and tax rises, says he won’t stay on beyond his initial three-month term.

The departure of Mr Laws, prompted by scandal, was lamented as a personal tragedy for him and an even greater loss for the Treasury. But Sir Alan’s decision to go is potentially an even more serious blow to Mr Osborne, who badly needs a respected and credible OBR to provide independent backing for his controversially aggressive fiscal policies. At best, this is a failure of planning and communication on the part of the Chancellor. The Treasury insisted yesterday that Sir Alan, who is 73, had never intended to stay longer than his initial three-month term.

In which case, why has Mr Osborne not yet found time to appoint an equally impressive replacement to run the OBR? Or, at least, not made it clear all along that Sir Alan would not be its permanent director?

At worst, Sir Alan decided to quit in the face of a perceived threat to the independence of his role. The row last week over how many jobs public spending cuts will cost saw the OBR forced to intervene with its own forecasts. Did Sir Alan decide this episode represented an early attack on the OBR’s political impartiality?

Either way, Mr Osborne finds himself in a hole. Three months before he has to present a review of spending that will see departmental budgets cut by unprecedented amounts, the institution he set up as an impartial arbiter now has no-one to head it up. The review will be conducted on the basis of forecasts made by an institution whose leader is departing before the cuts his work will be used to justify have even begun.

The idea of an independent forecaster providing government growth forecasts, as well as regular verdicts on whether ministers are on target to meet promises they have made about cutting the deficit, has a great deal to commend it. But the OBR stands or falls on the credibility of those who lead it. That the Treasury has been unable to persuade the first head of the OBR to stay longer than three months is not an auspicious beginning. And if potential successors suspect Sir Alan has left for political reasons, they’ll be even more reluctant to replace him.

n At last, some good news on the economy, where all the data of the past few days has been fuelling double dip fears.

The SMMT’s figures for car sales during June were unexpectedly buoyant, with better fleet sales more than compensating for the fall-off in trade from individual drivers that we have seen since the end of scrappage.

The question, however, is how long that positive message will endure. The motor industry itself expects to see sales slipping back during the second half of the year — not least because business confidence surveys suggest optimism is now faltering, so fleet spending is likely to fall back once again.

Then, in the new year, the industry will have to begin contending with the higher rate of VAT. When Alistair Darling temporarily cut VAT in 2009, there was a great deal of sniping about the effectiveness of the gesture in terms of boosting consumer spending.

But on items such as motor cars, the savings were quite noticeable to customers, and the VAT cut prompted a decent sales uplift. There is no reason to think the reverse won’t be true when VAT rises to 20% on January 4, 2011.

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