MNI INTERVIEW2: New UK Govt's Growth Boost Little Help For OBR Projections

MNI ((MNI) London) - MNI (LONDON) - The UK’s incoming Labour government will struggle to convince the Office for Budget Responsibility to incorporate an acceleration of economic growth into arithmetic used to calculate fiscal targets or to take public-private projects off balance-sheet, former top OBR official Andy King told MNI.

Labour, on the brink of power after Thursday's election according to polls, has championed planning reform to boost growth, but King stressed the difficulty for the OBR of putting any numbers on the proposals despite his conviction that the planning system has been a key dampener of investment and growth.

"There are all manner of things that mean that the UK has low investment rates in total, in the public sector, in the business sector, in the housing sector ... But one common theme across them all is that to get something done, you have to get through the planning system, and the planning system acts as a constraint ...it's almost like a rationing system," he said in an interview.

While the OBR has recently allowed some supply side reforms, such as a cut in payroll taxes, to move the forecast by boosting labour supply, these are unlikely to set a precedent, said King, who was on the OBR's ruling body, the Budget Responsibility Committee, until August 2023 and is now at consultancy Flint Global.

"Planning reform is just different ... You can read the academic literature on the labour supply response to employment taxes, and you can decide that ... it's net positive, and therefore you're going to use that elasticity when a tax rate has changed ...[but] what is the elasticity of investment to planning reform? You've got to define planning reform. It's not a number, it's a process, it's a piece of legislation, it's the implementation of a piece of legislation... So the judgement is very much more difficult," King said.

PFI NO SILVER BULLET

Labour, which has pledged to maintain the current fiscal target of reducing public debt as a proportion of GDP after five years, is also reportedly planning a wave of public-private projects, echoing the Private Finance Initiative (PFI) schemes that had their hay day under the previous Labour government before the Global Financial Crisis. Back then PFIs for such things as hospital building were taken off balance sheet. (See MNI INTERVIEW: Fiscal Ratchet Puts UK Debt On Untenable Path)

King suggests a repeat would be tricky because the accounting rules were changed a couple of years ago. The Office for National Statistics took the view that the risk transfer of such projects is insufficient for them to be treated off-balance sheet and that the financial value of the lease of the PFI leased should be treated as debt.

The boost from infrastructure projects to progress towards the fiscal targets is also limited by the fact that while construction does show up on the demand side, the asset is not typically active within five years, King noted.