Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Londesborough Excerpts

Tuesday 3rd November 2026 Grand Committee

[Lord Londesborough (CB)]

My Lords, it was a pleasure and privilege to sit on the Economic Affairs Committee to interrogate the effectiveness of our fiscal rules under the astute chairmanship of the noble Lord, Lord Wood of Anfield.

Just a year before this report and before our brutal rotation, the committee conducted an inquiry into the sustainability of our national debt; it was entitled, somewhat fancifully, National Debt: It’s Time for Tough Decisions. Since then, I regret to say that there has been an almost complete absence of tough decisions on the fiscal front. Chancellor Healey’s muted Budget was, I am afraid, yet another example of procrastination and back-ending a whole host of decisions on spending into the next three to four years, which history shows are never, or very rarely, fulfilled.

We now have a new term: a “breathing space”— that is, a period in which we will do as little as possible to address our addiction to borrowing in a low-growth economy but keep just within the fiscal rules. Therein lies the problem with our fiscal architecture: it allows for rolling forecast targets to be three years out. That is an improvement on the pre-existing five-year rule, admittedly, but it ignores the cumulative impact of our deficit financing and thus allows our debt to grow and grow. Our track record on debt is deeply disturbing. Having breached £3 trillion, as we just heard, it has tripled in size over the past 15 years in spite of, or perhaps because of, our fiscal architecture.

The committee’s report also points out, correctly, that there is an excessive focus on short-term rule compliance but insufficient attention is paid to longer-term trends, as the OBR’s much-maligned long-term forecast of debt approaching 270% of GDP by the middle of the 2070s has highlighted.

I have sympathy for the OBR, particularly after last year’s pitch-rolling and kite-flying exercises by the Treasury. However, the truth is that when Chancellors operate with such little headroom, now down to £15 billion, their margin for error is tiny when taking the difference between around £1.5 trillion of both tax and spending by the end of the forecast period.

My background is private sector, not public sector, first as an entrepreneur seeking to raise debt and to attract investment, and latterly on the other side of the table, as an investor seeking to lend or invest in start-ups and scale-ups. The debt and equity financing that goes into loss-making companies is judged on their ability to grow revenues at a faster pace than costs, and ultimately to generate profits on a sustainable basis.

As investors, we pay special attention to what we call fantasy hockey sticks resulting from excessive optimism. I was reminded of that when reading the OBR’s latest economic and fiscal outlook. The OBR has a history of bias, specifically optimism bias, in terms of both budget deficits and borrowing requirements. Now the OBR is projecting that borrowing will fall from last year’s £134 billion to £133 billion in FY 27, this year. It will then apparently fall steadily over the next four years, down to £67 billion in FY 31—an inverted hockey stick, if you like, but no more credible. That also assumes that the Government make unspecified but substantial real cuts in spending, which was likened to fiction by the former chair of the OBR during our national debt inquiry.

Remember that these cuts have to be achieved despite the “five D” headwinds. I remind the Committee that they are demography, with an ageing society; dependency, with a soaring benefits bill; a defence programme that is to increase by 40% over the next eight to nine years; decarbonisation; and the fifth D, which has now become the most menacing of all: debt, as in debt interest, which has grown from £40 billion to £120 billion this year and, warns the OBR, will structurally settle at between £160 and £190 billion in the 2030s.

If our national economy was treated as a private company, not a sovereign entity, the bond markets would not just be charging us a premium for lending but would very likely pull up the drawbridge altogether as there is no credible plan to get us back into surplus. The hope is that AI will positively impact productivity, but that is a hope, not a strategy.

I agree that the rules have their place. They provide us with guardrails so that we can show the bond markets some level of fiscal discipline that enables us to go on borrowing and piling up national debt. Ultimately, though, we can only reduce the debt, let alone our servicing costs, by delivering real GDP growth per capita over a sustained period, but that cannot happen if you keep increasing borrowing, as well as raising the tax burden to ever higher percentages of GDP. Fiscal rules without economic growth are, to an extent, sticking plasters that enable us to go on tapping the bond markets for finance as we continue to generate huge budget deficits.