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George Osborne pledges audit of UK debt

By Emma Thelwell

Updated on 17 May 2010

The coalition's emergency Budget will take place on Tuesday 22 June, Chancellor George Osborne announced today, as he launched an independent audit of the country's finances.

Chancellor George Osborne will launch an independent audit into the nation's finances after accusing Labour of 'fixing' forecasts (Getty)

In a move to "change the way Budgets are made forever", Mr Osborne has given up his right as Chancellor to control economic forecasting and appointed a new Office of Budget Responsibility (OBR). 

The OBR, led by former chief economic adviser to the Treasury Sir Alan Budd, will probe the previous government's "fixed" forecasts, Mr Osborne said at Whitehall today. Read the full transcript of Mr Osborne's speech here.

The first report will be lodged ahead of the budget, which will take place six weeks into the new government , in order for the country "to see how bad things really are", he added.

For the first time, economic forecasts will be taken out of the chancellor's hands, and he will be required to accept the OBR's forecasts when compiling his budget and pre-budget report.

"A most remarkable innovation"
This 'Sir Alan' is unlikely to crow 'You're Fired', but tens of thousands of people will be affected by the audit of Britain's public finances that officially started today, writes Faisal Islam.

George Osborne is to be congratulated for, as one of his first acts as Chancellor, eschewing the right to author government forecasts. It is a power vested in him by the 1974 Industry Act. And he has now ceded that power to a trio headed by the eminent economist Sir Alan Budd at the Office of Budget Responsibility.

The new chancellor wanted this to feel as revolutionary as the 1997 decision by Gordon Brown to offer the Bank of England independence to set interest rates. Sir Alan Budd served on that inaugural Monetary Policy Committee, and claimed today's news was the 'most remarkable innovation; in Britain's economic policymaking.

Sir Alan said it was "quite remarkable" that the Mr Osborne had "surrendered his powers" in appointing independent forecasters.

"We started on Thursday and it's going well," Sir Alan said. "We are not claiming that we'll get the fiscal forecast right, but every judgement will be ours and I guarantee our independence and integrity."

Mr Osborne said the forecasts would create a "rod for my back down the line and for future chancellors. That's the whole point."

Under Labour "forecasts were fiddled in order to help the government to present the sort of budget it wanted to present", Mr Osborne said in a seperate interview with the Financial Times.

He added today that the public had lost faith in government forecasting after 13 years of Labour being, on average, £13bn out - "almost always in the wrong direction".

He said the temptation to "nudge up forecasts" has been too great in the past. "I'm the first chancellor to remove the temptation to fiddle the figures," he said.

As new chancellor he is preparing to make deep spending cuts and tax hikes in next month's emergency Budget.

Key dates:
From Tuesday 18 May: Approval of the House of Commons Speaker
Members of the Houses of Commons and Lords swear in for the new Parliament
Tuesday 25 May: State Opening of Parliament and the Queen's Speech
Tuesday 22 June: Emergency budget

Mr Osborne is due to unveil his first major step in filling the £163bn deficit later next week, with a £6bn efficiency savings plan.

"The Treasury's assessment is that there is a strong economic case for an immediate spending reduction of £6 bn. So we are in no doubt that this action is advisable," he said today.

"By tackling wasteful spending now rather than later, we can demonstrate our commitment to tackling the deficit."

David Laws, the new Liberal Democrat Chief Secretary to the Treasury, said he arrived at his new desk to a letter from the previous Chief Secretary.

"It was all of one sentence," he said. "Dear Chief Secretary, I'm afraid to tell you there's no money left - which was honest but slightly less helpful advice than I had been expecting."

Gary Gibbon blog: Byrne's letter was 'a joke'
Former Treasury minister Liam Byrne says a note to his successor was meant as a joke.

He said: “The letter was a joke from one chief secretary to another. I do hope David Laws’ sense of humour wasn’t another casualty of the coalition deal.”

Meanwhile, prime minister David Cameron said new ministers had unearthed evidence of "crazy" spending by Labour ministers in the run-up to the general election.

Universities minister David Willetts said Labour had left behind "not so much an in-tray as a minefield".

The "minefield" includes a £13bn defence contract for tanker aircraft, some £240m of school building contracts signed off by Ed Balls shortly before the General Election and a £600m computer contract for the new personal pensions scheme.

However, shadow chancellor Alistair Darling said: "We have always been entirely clear about public spending decisions. We're required in law to set out forecasts that take account of all decisions taken and we've published these in budgets and pre-budgets.

"The suggestion that Treasury civil servants have colluded in publishing anything other than accurate figures is just plain wrong.

"Every new government tries blaming the last one. This just shows the old politics is alive and well with the Lib-Con coalition."

John Cridland, deputy director general of the CBI, welcomed independent forecasts. He said: "An independent authority will help inject additional credibility and transparency into the forecast and is something the CBI has been calling for some time.

"Because of the risks to the economic outlook that remain, it would be useful for the OBR to present a range of forecasts based on different scenarios so that risks are fully explored and prepared for.

"Given the probability that the Government's economic forecasts will be downgraded, pushing up borrowing totals, a credible fiscal plan supported by a tough line on public spending will be even more important."

Meanwhile, the Taxpayers' Alliance warned the OBR could entrench Treasury flaws.

Research Director Matthew Sinclair said: "It is vital that the OBR does not simply entrench the same mistakes made by the Treasury, which currently fails to take sufficient account of the dynamic effects of taxes.

"So it is important that the OBR has a clear understanding of its role as enabling scrutiny of government by elected parliamentarians and ordinary taxpayers, not acting as the final arbiter on whether decisions are right or not."

Tax talk
As the review gets underway, neither Mr Cameron nor Mr Osborne could rule out a forthcoming rise in VAT.

Mr Cameron said in a BBC interview yesterday: "That is not something we plan to do", while Mr Osborne repeated the campaign claim that the party had "no plans" to do so.

The prime minister has signalled plans to reform Capital Gains Tax, applying different rates to second homes and business investments, for example.

Mr Cameron said yesterday that talks were ongoing with the Liberal Democrats on Tory plans to remove tax credits from families earning more than £50,000.

However, the coalition has announced an immediate clampdown on bonuses for senior civil servants - cutting the bonus scheme by two-thirds in a bid to save £15m annually.

Economist David Blanchflower, a former member of the Bank of England monetary policy committee, said the Chancellor risked scaring the markets with his downbeat tone.

"Why the government wants to scare everybody and talk down the economy I really don't know," he said last week.

"They need to do everything they can to bolster the economy. The chancellor is talking it down and risks scaring the markets. Gordon Brown saved this country from a great depression. The new government risks a death spiral."

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