Read a new report and join the campaign at www.jubileedebtcampaign.org.uk/dodgydeals

So, he announced, from now on, the Treasury’s forecasts would be rigorously vetted by an independent body, the new Office for Budget Responsibility (OBR) – and, as a result, the chancellor’s public credibility would be restored.

Trailed as an innovation on a par with Gordon Brown’s 1997 decision to set up an independent Monetary Policy Committee within the Bank of England, the OBR looked like it could be a potentially useful body.

Two months on, however, Osborne’s cunning plan seemed in tatters. First, after a Treasury leak raised serious questions about the employment forecasts presented in the coalition’s emergency budget, the OBR rushed out some fresh figures conveniently in time for Cameron to head off the critics during prime minister’s question time in the House of Commons.

Shortly after, it was announced that the OBR’s chief, former top Treasury adviser Alan Budd, was going to resign after only three months in post. It also turned out that for all its vaunted independence, the OBR had set up shop within the Treasury, a few doors down from the chancellor.

Was this another political fiasco, on top of the abrupt departure of the first coalition chief secretary David Laws? Had the unexpectedly self-confident Osborne shot himself in the foot?

Well, not really. It turned out that Budd had all along only intended to head the OBR for three months in order to get it established. As for the physical location of the OBR, one might as well argue that the chancellor’s residence at 11 Downing Street meant that the prime minister could easily keep him on a tight leash. Try telling that to Tony Blair.

However, the establishment of the OBR does raise some important issues about how economic policy is made in a capitalist democracy.

Back in 1944, the Polish socialist economist Michal Kalecki famously predicted that as public spending became more and more important, governments would be tempted to engineer a boom towards the end of their term of office in order to get re-elected. Once back in power, they would then slam on the brakes and restore the fiscal balance, only to start spending again as the next election loomed. He called this ‘the political trade cycle’.

To avoid this political manipulation, a fiscal authority completely independent of the government of the day might seem to be a good idea – but it would also make ministerial government largely pointless.

Osborne’s OBR is an attempt to shore up the chancellor’s credibility by at least ensuring that his plans are based on ‘reliable’ forecasts of where the economy is going. But reliable forecasts can’t be made in a capitalist economy.

True, they are based on statistical models of how the economy has behaved in the past. But economists have fundamental disagreements about past economic behaviour, and in any case a capitalist economy is not like a machine that functions on the basis of stable linkages between its components.

As we know only too well from the credit crunch of 2007-08 and the ensuing crisis, the behaviour of financiers, businessmen and other economic actors – even politicians – is fundamentally unpredictable. Someone, therefore, has to make what amounts to a set of reasonable guesses.

The real story about the OBR concerns these guesses. Osborne’s budget projections over the period to 2014 are based on growth of 1.2 per cent this year and 2.6 to 2.8 per cent thereafter, despite falling public spending, notably a halving of investment. Yet an unprecedented private sector recovery will apparently reduce the number of unemployed people claiming benefits, from 1.6 million last year to 1.2 million. To most commentators, this is pie in the sky.

In addition, the profits of the financial sector are supposed to grow at nearly 9 per cent this year and 6 per cent a year thereafter, while house prices go up on average nearly 4 per cent per year. So forget about reining in the City and making housing more affordable: it’s back to business as usual – until the next crisis.

Hugo Radice is a political economist and visiting research fellow at the University of Leeds

Within a few days, the Spanish government had announced a new package of austerity measures, aimed at reassuring the markets of its capacity to reduce the 11 per cent budget deficit. The measures include cuts in civil service wages by an average of 5 per cent in 2010.

So what is it about the mere opinion of a private firm on the capacity of a government to repay its debts that can create such panic for the markets and ensuing ‘austerity’ for the working class in countries across Europe and beyond?

The big three CRAs – S&P, Moody’s and Fitch’s – are not just any old private firms. Between them, they probably have more direct power over democratically-elected governments than any other corporate entity in the world. They continue to maintain this extraordinary power, in spite of very clear evidence that they were in large part responsible, through a mix of incompetence and downright fraud, for the financial crisis of 2008.

Their power has its roots in the near collapse of the financial system in the early 1930s, when bank regulators decreed that banks could hold only ‘investment grade’ bonds determined by the ‘recognised rating manuals’ already being produced by these three firms. In effect, the US outsourced the rating process. This has never changed, and was reinforced in 1975 with the adoption of the three firms as ‘nationally recognised rating organisations’.

This created a cartel at the heart of the supposed free market, with Fitch’s, Moody’s and S&P effectively left to do as they pleased. This they did with gusto, moving away from their previous investor-pays business model towards a more lucrative issuer-pays model whereby the firms issuing bonds pay the CRAs for their ratings.

The potential for massive conflict of interest and downright corruption with the issuer-pays model is not hard to spot, and so it came to pass. By the mid-2000s the credit rating agencies were up to their necks in dodgy dealings with the firms whose bond issues they were supposed to be rating objectively.

Most notoriously, they continued rating sub-prime ‘collateralised debt obligations’ (CDOs) at AAA, in the face of all real-world logic about the creditworthiness of these oversold mortgages. As the bubble grew, so did the fat profits of the CRAs, secure in the knowledge that they were, by force of legislation, just about the only players in town.

The Obama administration is now looking to reform some of the greater abuses of the credit rating system, some of which have come out in extraordinarily damning details in hearings in recent months. Nevertheless, the efforts that are being made to move away from the corrupt issuer-pays model are designed to protect investors, not those who have suffered most from the global recession.

Thus, when S&P downgraded Greek bonds to ‘junk status’ just as the Eurozone authorities were putting together their rescue package, the Greek economy was sent spinning into a self-fulfilling spiral of decline, where bonds can only be sold at huge interest rates, which adds to the deficit problem, which in turn makes future bonds harder to sell and creates further calls for austerity on a government already brought to its economic knees.

At the start of 2010, Pierre Cailleteau of Moody’s outlined what he foresaw as regards sovereign debt: ‘In several countries … a great sacrifice is required from the respective populations … In 2010, the ongoing crisis will further test such fortitude. We are closely monitoring signs of economic rebound as well as of political and social tension as early indicators of the sustainability of fiscal efforts.’

Three Greek bank workers were killed by an incendiary device in the ‘political and social tension’ that followed the credit rating agencies’ opinion on Greece. Pierre Cailleteau from Moody’s, and his colleagues from S&P and Fitch’s, weren’t around to throw incendiaries that day – but it is they who started the fires.

Paul Cotterill is a Labour councillor on West Lancashire council

Two years ago, the IMF looked to be on its last legs. It had got to the stage where nobody wanted to borrow its money. Many developing countries started accumulating reserves to avoid ever having to go to the IMF loan shark. Developed countries in trouble would go just about anywhere – China, Russia, Saudi Arabia – to avoid the IMF.

Then came the meltdown. The IMF failed to see it coming – pretty damning for a body supposed to oversee global financial stability – but bankrupt countries suddenly had no choice but to come begging.

In April last year, the G20 pumped the organisation with £330 billion of new funds. The radical Uruguayan writer Eduardo Galeano called the decision ‘black humour’, saying it would ‘rub salt in the wound’ of countries hit by a crisis they did not create.

The IMF claims to have been reborn. It says it has mended its ways (without apologising for them) and will do things differently this time around.

Certainly there are discussions about changing its voting system, which currently assigns Belgium and the Netherlands more votes than China. And in the present economic crisis, the IMF has, in some cases, actually encouraged countries to spend. It now also expresses ‘concern’ about protecting the very poorest.

But in depression-hit eastern Europe the IMF is rapidly becoming as hated as it once was in Africa.

In the 1980s, at the height of the third world debt crisis, the IMF lent huge amounts of money to developing countries, allowing them to pay off their loans to banks who had lent recklessly in the 1970s. The banks got bailed out, while the poor paid the price. Exactly the same thing is now happening in eastern Europe.

Latvia is experiencing Europe’s worst recession. On the IMF’s assessment, by the end of this year Latvia will have gone through a worse crash than the US during the Great Depression. Unemployment stands at 23 per cent.

The fund has led a rescue package of 7.5 billion euros (£6.7 billion) – but the price is eye-watering austerity measures. Schools and hospitals are expected to close and the government has pledged to reduce maternity benefits and raise taxes. Wages have been slashed by up to 40 per cent.

In Hungary, the right-wing Fidesz party looks set to sweep to power in April thanks to disenchantment with the government, which took an IMF loan in return for higher taxes and spending cuts. In Romania, the IMF is demanding spending cuts and labour reforms that could lead to 100,000 job losses.

In Ukraine, a full-blown political battle is being waged. Angry at prime minister Yulia Tymoshenko’s toeing of the IMF line, voters favoured her rival Viktor Yanukovych in February’s presidential election. However, Tymoshenko has refused to concede defeat, alleging electoral fraud.

Late last year, Ukraine’s parliament voted to raise the minimum wage. The IMF protested by suspending its funding. Today, parliament’s refusal to pass a budget for 2010 with sufficient spending cuts means the IMF funding is again on hold.

Clearly the IMF is as much about power as economics. This is nowhere seen more clearly than in Iceland. Icelandic politicians have fumed that the IMF has blocked aid, saying it is doing so in order to pressure Iceland into paying back the British and Dutch bailouts of imprudent investors – on the terms demanded by the creditors.

The IMF is repeating history. But so too are the people, with street protests in Riga, the Latvian capital, becoming increasingly militant and a small-scale renewal of anti-IMF activism in the west. It looks like the seeds of the next wave of resistance are already in place.

Nick Dearden is the director of the Jubilee Debt Campaign, www.jubileedebtcampaign.org.uk

For further critical information on the IMF visit www.brettonwoodsproject.org

‘The campaign was completely defined by anti-politician sentiment, using the slogan “politicians talk, we pay”,’ wrote Frayne. ‘Not unreasonably, some Tories argued that lessons from the north east were not transferable to party politics.  

‘But this ignores two things. Firstly, the precedent set by Reagan and the Republican Party over the 1980s and 1990s – where low-tax, small-state messages were explicitly linked to anti-politician messages … Secondly, it ignores the fact that … mistrust of politicians is one of the defining issues of the times – parties can either embrace it or be swallowed up by it.’

Tellingly, Frayne followed his role at North East Says No with a stint as campaign director of the Taxpayers’ Alliance – the group that perhaps understands his message better than any other. The TPA, which boasts an average of 13 media appearances a day and claims to be a ‘grassroots alliance’ of ‘ordinary taxpayers’, is in fact a group of right-wing ideologues whose mission is to ‘oppose all tax rises’ and cut public spending. Its academic advisory council includes Adam Smith Institute founders Eamonn Butler and Madsen Pirie, Thatcherite academics Patrick Minford and Kenneth Minogue, and right-wing economist Ruth Lea.

The most enthusiastic coverage comes from Tory tabloids such as the Daily Mail, with which the TPA has launched a ‘fighting fund’ to prosecute MPs who abused expenses. But it also gets considerable local media attention, as well as airtime from the BBC and other broadcasters. Even the right-wing Spectator complained last year: ‘It is so one-sided that one almost yearns for some opposition on the subject … The achievement of the Taxpayers’ Alliance is to make one word synonymous with tax: waste.’

Some critics accuse the TPA of being a Tory front, though it is more accurately described as part of the party’s ‘UKIP tendency’. Many of its advisors previously backed the anti-euro campaign, Business for Sterling, and in November the TPA sent out 5,000 free copies of its latest book, Ten Years On: Britain without the European Union. In seeking a Tory victory, the TPA also strives to push the party rightwards. In September it drew up, with the Institute of Directors, plans for an annual £50 billion of public spending cuts. As Patrick Wintour noted in the Guardian, the proposals were ‘welcomed by shadow ministers eager to have outriders creating a climate of respectability around big cuts’.

While the TPA’s lobbying for cuts - which includes abolishing Sure Start children’s centres – must be fought, its harnessing of ‘anti-politics’ requires a more considered response from the left. Some of its targets – including MPs’ expenses and the role of quangos – are legitimate and must not be allowed to become ‘right-wing’ issues. (Though they should be kept in perspective. As Vince Cable said: ‘The bankers can’t believe their luck. A couple of days after the first [expenses] revelations in the Daily Telegraph, the headline in the City’s free newspaper City AM was a shout of orgasmic release: “Now THEY can’t lecture US.”‘)

The position of the investigative journalist Heather Brooke, whose pioneering use of the Freedom of Information Act did so much to expose the expenses scandal, highlights the political ambiguity around this issue. Brooke’s book, Your Right to Know, is published by left-wing Pluto Press and promoted by Red Pepper – and yet campaigns jointly with the TPA. (Not all of her readers are happy about this – see http://bit.ly/oTwo9)

The Taxpayers’ Alliance’s concern with transparency deserts it when it comes to its own finances. The TPA’s last full accounts, for 2006, record an income of £130,000 – hardly enough to sustain its current 10 full-time staff and offices in London and Birmingham. Since then, it has published ‘abbreviated’ accounts, which means income and expenditure are withheld. Donors are kept secret.

One source of TPA funding has been the shadowy Midlands Industrial Council. The MIC was founded in 1946 as a pressure group to fight the Attlee government’s nationalisation plans and to champion free enterprise. It has donated around £3 million to the Conservative Party since 2001, much of it targeted at marginal parliamentary seats in the midlands. As an ‘unincorporated association’ it is allowed to keep its membership secret – allowing donors to get around the legal requirement on political parties to reveal their backers’ identities.

So why won’t the TPA open its books? As it recently told MPs who tried to prevent their expenses being published: ‘If you have nothing to hide then you’ve got nothing to fear.’