Thread by @alfie_stirling

Today's @OBR_UK 'Fiscal risks report' is in headlines for its Brexit 'stress test'. But it also happens to include their first attempt at climate analysis.

Although a welcome move, the bigger picture is the OBR has got things the wrong way around 1/11

obr.uk/frr/fiscal-ris…

By 'fiscal risks', OBR tends to mean things that may increase public borrowing. But this ignores a key point: public balance sheets are there to absorb risk. They are there to *assume*, not avoid, risks that would otherwise cause more harm if left to fall on families & firms 2/11

EG government can pool individual risk of getting ill via taxes & free health. Borrowing to build a hospital can also spread risk through time: the interest & debt repayments ensure all the future tax payers who visit the hospital also contribute to the cost of building it 3/11

On Brexit, OBR's report looks at the 'risk' debt will rise in a 'no deal' recession. But saying there's a risk borrowing might rise in recession is like saying there's a risk radiators might turn on in winter. We need both to temporarily respond to a problem. 4/11

The OBR's narrow definition of risk also reflects a deeper policy problem: UK 'fiscal rules' (targets debt & borrowing) are all about responding to risks *after* the event. Borrowing is allowed during recession, but otherwise must fall to save ammunition for the next crisis 5/11

This might make sense when causes of a future crisis are 'unknowable'. But we also already have a crisis where the causes are known: human made climate change. Holding back space to borrow in the future will be of little use if temperatures & sea levels have already risen 6/11

Meeting the UK’s legal commitments to ‘net zero’ greenhouse gas emissions by 2050, which are themselves likely to prove too unambitious, will require public borrowing & investment to support the largest peacetime mobilisation of resources in the country’s history 7/11

This will simply not be possible without the support of public borrowing & investment. But UK fiscal rules essentially prevent this support from happening outside of recessions. Far from making policy more responsible, the current rules are an exemplar of irresponsibility 8/11

To start the conversation on solutions @NEF has today published a new policy report setting out recommendations to reform the UK's fiscal rules, adapted from an essay @powellds, @Frank_vanlerven & I recently wrote for @Cmmonwealth neweconomics.org/2019/07/changi… 9/11

Our main recommendation is to replace targets for debt with an assessment of how much to borrow at a given point in time. This will need to reflect the trade-offs facing government between either taking on too much risk, *or* not enough risk. 10/11

The new framework would reflect the reality of society-wide risks, beyond the OBR and Treasury's narrow definitions. And the reality of today's climate crisis is that the risks to society from global heating far outweigh the average recession, or even a Brexit 'no-deal' 11/11