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Resolution Foundation proposes new approach to fiscal rules

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The Resolution Foundation think tank has published a report proposing a new set of fiscal rules which it argues will be needed to guide UK fiscal policy through a period of considerable uncertainty for the economy. The report notes the government ‘has effectively abandoned the current rules following a flurry of spending commitments and promises to cut taxes’.

The report recommends:

  • a net worth objective, to deliver an improvement in public sector net worth as a share of GDP over the next five years;
  • a structural current balance target, to achieve a cyclically-adjusted public sector current balance of 1% of GDP (and no less than -1%) over five years, which would allow the government to borrow to invest, while keeping receipts and day-to-day spending in broad balance;
  • a debt interest ceiling, to ensure the proportion of revenue spent on debt interest does not exceed 10% at any time; and
  • an ‘escape clause’, under which the net worth objective and structural current balance target would both be suspended in any years in which the OBR’s pre-measures forecast showed spare capacity in excess of 1% and bank rate below 1.5%.

These rules are tested against four different economic scenarios:

  • the baseline forecast, in line with the OBR’s most recent (March 2019) forecast;
  • secular stagnation, with the economy in a period of persistent low growth, low inflation and interest rates;
  • a cyclical recession; and
  • a no-deal Brexit.

In all of these scenarios, the report argues, the debt interest ceiling would ensure that the government’s debt burden remained affordable at all times.

See the report, Totally (net) worth it: The next generation of UK fiscal rules, at

Issue: 1463
Categories: News