Tory watchdog to strip Treasury of key powers to curb reckless spending, if they win election

In a move they compared to Labour’s 1997 decision to remove the Chancellor’s power to set interest rates, Shadow Chancellor George Osborne announced plans to set up an independent watchdog to police the Treasury.

The Office for Budget Responsibility (OBR) would have the power to stop governments running up large budget deficits to fund their spending promises – what Mr Osborne describes as ‘showing a yellow card to the Chancellor’.

The proposal follows the Tories’ successful barb that Gordon Brown compounded the crisis in ‘failing to fix the roof while the sun was shining’ by spending excessively during the years of buoyant tax revenues.

Conservative plans will 'show a yellow card to the Chancellor', says George Osbourne (right)

Mr Osborne said: ‘It is time to bring an end to Gordon Brown’s Age of Irresponsibility. The Conservatives will unveil a radical long-term economic plan to bring financial responsibility to our economy and fiscal responsibility to our government.

‘This independent body will be able to hold up a yellow card when the Chancellor steps out of line and means the public will be able to see if the nation’s finances are being mismanaged and going further into debt.

The aim is to bring to an end Gordon Brown’s Age of Irresponsibility and herald a new age of Conservative responsibility.’

The body would be staffed by economists seconded from – but independent to – the Treasury.

The head is expected to be a distinguished economist or former Treasury mandarin, presiding over a team of three ‘wise men’ comparable to a mini- version of the Bank of England’s Monetary Policy Committee.

It would be able to scrutinise ‘hidden liabilities’ – a reference to Mr Brown’s use of the Private Finance Initiative to build up debts which were kept off the balance sheets.

The regulatory authorities would also be given new powers to force banks to build up their cash reserves when the economy is strong, and a new system of deposit insurance would guarantee the first £50,000 of savers’ deposits in the event of a banking collapse, up from £35,000.

A senior Tory official said: ‘The OBR will do to tax and spending what Bank of England independence did to interest rates. For the first time, the true state of the public books will be laid bare for all to see.

'If the Chancellor says the country is coming out of the red and into the black, and the OBR says that is not true, the Chancellor will have to answer to Parliament. No longer will the Chancellor be judge and jury of the economy – as Brown has been, with catastrophic consequences.

‘If the economy is heading for the rocks, the OBR will sound an alarm bell, rather than cover it up as has happened under Labour.’

Mr Osborne added: ‘It will transform the way budgets are made, stop chancellors fiddling the figures and protect the public from reckless debt. The proposal is the most far-reaching change to fiscal policy in living memory.’