Report

Strengthening the UK’s fiscal framework: Putting fiscal rules in their place

This report from UK think tank the Institute for Government provides a guide to reform the fiscal framework to enable the government to make better choices.

The UK’s fiscal framework, including a flawed set of rules, is incentivising bad policy decisions shaped by short-termism and fictional spending plans – and does little to promote fiscal sustainability.

With a week to go until Jeremy Hunt’s pre-election budget, this report warns that successive governments have gamed their fiscal rules: claiming to be adhering to fiscal discipline while frequently announcing short-term giveaways matched by longer-term tax rises or spending cuts that often do not materialise. While the chancellor will use his budget to insist he is working to the letter of the fiscal rules, the paper says he will not be adhering to the spirit of those rules.

The report sets out why the current approach is no longer working – and provides a guide for this or future governments to reform the framework to enable them to make better choices. It calls on chancellors to set out a comprehensive fiscal strategy – working out the levels of taxation, expenditure and debt that are consistent with meeting government’s overarching objectives – from which a set of rules can follow.