Dr Rob Calvert Jump (University of Greenwich) and Professor Jo Michell (UWE Bristol)
It is widely understood that the UK’s fiscal framework is unfit for purpose. As Gemma Tetlow, writing for the Institute for Government, puts it: “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”. Criticism of the framework has emerged from think tanks including the Institute for Fiscal Studies (IFS), the National Institute for Economic and Social Research (NIESR), the Institute for Public Policy Research (IPPR), the Fabian Society and the Resolution Foundation ,among others.
Fiscal policy — decisions about government spending and taxation — should be implemented on a long-term basis, reflecting the strategic aims of the government. Instead, policy is increasingly driven by judgements made by the Office for Budget Responsibility (OBR) on the basis of uncertain and volatile forecasts. Small changes in forecasts for growth and interest rates cause large shifts in so-called ‘headroom’ and therefore in judgements about whether fiscal rules have been met. Repeatedly, we have seen Chancellors scrambling to find tax increases or spending cuts in response to such shifts. This short-term focus results in inadequate public investment. This, in turn, is an important cause of the UK’s persistent weaknesses in productivity and wage growth.
