The House of Lords Economic Affairs Committee has launched a new inquiry into the UK’s fiscal framework, inviting written submissions from stakeholders.
The inquiry aims to examine the effectiveness of the current fiscal framework and its influence on Government fiscal policy, including:
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How the Government should set and adhere to fiscal rules.
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The Office for Budget Responsibility’s (OBR) remit, powers, and approach to producing forecasts, assessments, and analyses.
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The interaction and working relationships between the bodies within the fiscal framework.
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How the Government uses outputs from the OBR in its decision-making.
The committee will also consider how future changes to fiscal rules should be made and what factors should guide those changes, ensuring a robust and transparent fiscal policy process.
In 1997, the Labour Government introduced a set of fiscal rules designed to promote sustainable public finances over the longer term. Since 1997 there have been ten sets of fiscal rules, nine of these since 2008. When the current Government introduced the latest fiscal rules, it did so without consultation. Past experience suggests that the rules will at some point be changed again.
In 2010, the Coalition Government created the Office for Budget Responsibility (OBR), an independent body tasked with the publication of economic forecasts and analysis of the public finances. In November 2023, the OBR began using dynamic scoring in producing its forecasts, modelling the effects of changing economic behaviour in response to announced government policy.
There has been much discussion of the rolling nature of the targets built into the fiscal rules and whether they are sufficiently binding. Attention has also focused on the so-called fiscal headroom, the amount by which the Government can increase spending or cut taxes and remain compliant with its own fiscal rules.
The committee is seeking answers to the following questions:
- How should the Government determine the fiscal rules that it holds itself to? If the rules are changed again, should the Government consult on any proposals? Are there any negative effects arising from the frequency with which the UK has changed its fiscal rules?
- What form should any revised fiscal rules take (e.g. rolling vs. fixed time horizons, point estimates vs. ranges)?
- Does the OBR have the correct remit? Is it being asked to produce the right forecasts, assessments and analyses with the right frequency?
- Given the discretion the OBR has with respect to the methodology underpinning its forecasts, assessments and analyses, is there sufficient transparency regarding its judgements?
- Is the OBR’s use of dynamic scoring sufficiently robust?
- Do the relationships between the main bodies that exist within the fiscal framework – primarily HMT, HMRC, DWP and the OBR, but also the Bank of England and the Debt Management Office – allow each to properly carry out its work?
- What use should the Government make of the OBR’s output? Is the focus on fiscal headroom appropriate or does it unduly constrain the Government’s approach to fiscal policy?
Commenting on the launch of the new inquiry, Lord Wood of Anfield, Chair of the Economic Affairs Committee, said:
“The system of managing and overseeing the nation’s public finances is fundamental to all aspects of what the Government does. Our committee will explore the effectiveness of the UK’s fiscal framework – the role of the Treasury, the fiscal rules, the OBR and other bodies – and how the Government could improve it.
“To inform our work we want to hear from as broad a range of people as possible. If you have a view on any aspect of our inquiry, look at our call for evidence and let us know what you think.”
