MNI POLICY: Hughes, Fiscal Reformer, Picked As New UK OBR Head

--Championed Adoption Of Public Sector Net Wealth As Target Measure

By David Robinson

     LONDON (MNI) - Richard Hughes, a former Director of Fiscal Policy at the

Treasury and recently a leading researcher at the Resolution Foundation, has

been picked to be the next head of the UK's Office for Budget Responsibility.

     Subject to approval by the Treasury Select Committee, he will take over in

the autumn when current OBR head Robert Chote steps down.

     The appointment is seen as significant in part because Hughes has been a

champion of the idea of targeting public sector net wealth rather than just

focusing on debt or deficit measures as previous governments have done. This

approach could well appeal to Chancellor Rishi Sunak as he faces a vast budget

deficit in the wake of the Covid-19 shock.

     --WIDER READING

     In an MNI interview last November, Hughes said it would be better to base

rules on government accounts as a whole, via a measure of public sector net

wealth. While government assets do show up in whole of government accounts,

there is no focus on them in higher frequency public sector finance data.

     "Governments are saying we want to go out there and borrow to invest and it

is going to be good for future generations, it is going to be good for

taxpayers, it is all going to pay for itself. But how do you demonstrate if that

proposition is actually credible? How do you hold a government to account for a

proposition of that nature? You can't do it by excluding the assets and just

showing the borrowing and just showing the debt," Hughes said in the MNI

interview.

     If the government does end up taking stakes in key industries, as currently

proposed under its Operation Birch scheme, Hughes' approach would focus on the

value of the stakes and the cost of borrowing to buy them, rather than looking

at just the borrowing costs. Hughes has pointed out that UK public sector net

worth is pretty weak by international standards, with assets outweighed by

liabilities. 

     He has argued for a rule to increase public sector net worth as a

percentage of GDP by 2024-25 to force the government to concentrate more on the

value of its investments.

     --PITFALLS

     There are, however, pitfalls to such an approach with Charles Bean, head of

OBR forecasting and a former BOE deputy governor, warning that it could provide

false comfort and incentivise short-term borrowing in assets which prove to hard

to value and hard to sell in any downturn.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$B$$$,M$E$$$,MFB$$$,MGB$$$]