Does the UK fiscal framework need a rethink?

Fiscal policy is difficult. Governments have to balance multiple competing objectives, the economic and political, the short term and long term. The tools can be blunt. The future is uncertain, and crises keep coming. Assessing debt sustainability is an art, not a science. 

Yet all too often, the fiscal debate in the UK boils all of this complexity down to a single number: the amount of ‘headroom’ against the government’s pass-fail fiscal rule, as assessed under the Office for Budget Responsibility (OBR)’s central forecast. There is an increasing sense that this focus on ‘headroom’, and the framework more generally, is not delivering good outcomes.

At this event, Ben Zaranko, Associate Director at the IFS, presented the findings of a major new report on the UK fiscal framework, which sets out the problems with the current approach and makes recommendations for reform. The report argues that while now is not the right moment for an overhaul, the UK would be better served in the longer term by a different framework, and presents a vision of what that could look like and how we could get there.

Following the presentation, Gus O'Donnell, former Cabinet Secretary and Permanent Secretary of the Treasury, chaired a panel to discuss the key issues, where Ben was joined by:

• Chris Giles, Economics Commentator at the Financial Times
• Victoria Clarke, UK Chief Economist at Santander 
• Rupert Harrison, Senior Adviser at PIMCO and former Chair of George Osborne’s Council of Economic Advisers 

This project benefited from financial support from the Joseph Rowntree Foundation, which is gratefully acknowledged.