Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Razzall Excerpts

Tuesday 3rd November 2026 Grand Committee

[Lord Razzall (LD)]

My Lords, as a member of the committee I believe, without conceit, that this is an important and timely report. At its heart lies a fundamental question: is the UK’s current fiscal framework sufficiently robust to ensure the long-term sustainability of our public finances? The committee’s conclusion is concerning. It warns that the UK is on a path towards unsustainable levels of public debt and that the existing fiscal rules, despite successive revisions, do not provide sufficient assurance that debt will fall over the long term.

I believe that the report deserves serious consideration, because fiscal credibility is not simply about meeting targets in an individual Budget. I believe that the answer to the comments by the noble Lord, Lord Sikka, is that fiscal credibility is about establishing confidence that the Government can maintain public finances responsibly, withstand economic shocks and protect future generations from an excessive tax burden.

First, I will address the effectiveness of the current fiscal rules. The committee identifies a significant weakness in the existing framework, as people have said. Under the current arrangements, the Government are required to demonstrate that debt is falling as a proportion of GDP by the third year of rolling forecast. However, this does not necessarily mean that debt is falling over the longer term. Indeed, the committee highlights that the Government could technically meet their fiscal targets while the overall level of debt continues to increase. This raises an important question about the credibility and effectiveness of fiscal rules: rules should not be designed simply to demonstrate compliance at a particular point of time but should ensure that public debt is placed on a genuinely sustainable downward trajectory. As people have indicated, the committee therefore recommends an additional debt target requiring debt in the third year of the forecast period to be lower than in the first year. I support the principle behind this recommendation: fiscal rules must focus on the underlying direction of public finances rather than short-term improvements that may prove temporary.

Secondly, the report raises important concerns about fiscal headroom. The Government’s relatively small fiscal buffer leaves limited room for manoeuvre when economic forecasts change or unexpected pressures emerge. We know that economic forecasts are inherently uncertain and that, when the fiscal buffer is too small, even relatively modest changes in economic conditions can force difficult decisions about taxation and public spending. The Government obviously have not helped in the recent Budget by lowering the estimated fiscal buffer from £25 billion before the Budget to £15 billion. The committee therefore recommends that the Government commit to maintaining a substantially larger fiscal buffer, reflective of the unavoidable uncertainties in economic forecasting, and I support that recommendation. In addition—I do not think anybody has really touched on this—fiscal headroom should not be treated as money available for immediate spending commitments; it should provide genuine protection against economic shocks and unforeseen circumstances.

Thirdly, I highlight the importance of stability and credibility in fiscal policy. One of the report’s central concerns is the repeated modification of fiscal rules by successive Governments. Frequent changes risk undermining confidence among investors, financial markets and the wider public. A credible fiscal framework must provide predictability. Businesses need confidence when making long-term investment decisions, while international investors need assurance that the UK remains committed to responsible economic management—Liz Truss talked about that in her book, no doubt. This does not mean that fiscal rules should never change; economic circumstances evolve, and Governments must retain the flexibility to respond. However, changes should be carefully considered, evidence based and subject to meaningful consultation. The committee is right to argue that further changes should follow a comprehensive consultation process rather than being driven by short-term political considerations.

A number of noble Lords touched on the role of the Office for Budget Responsibility. The OBR provides independent economic and fiscal forecasts and assesses the Government’s performance against its fiscal rules. Its independence is absolutely essential to maintaining transparency and accountability. The committee rightly supports retaining responsibility for economic and fiscal forecasts with the OBR. It also recommends maintaining two forecasts each year while adjusting the timing of the spring forecast to create a more balanced interval between forecasting exercises. I particularly welcome the emphasis on strengthening co-operation between the Treasury and the OBR while preserving the latter’s independence. Independent scrutiny should not be seen as an obstacle to government policy; rather, it should help ensure that policy decisions are informed by realistic economic assessments.

Finally, we must consider the wider implications for economic growth. The UK’s public finances face considerable long-term pressures, including an ageing population, rising demands on public services, and commitments and the transition towards net zero. At the same time, weak productivity growth and the burden of debt interest payments constrain the Government’s ability to invest in the economy. We must therefore strike the right balance between fiscal discipline and productive investment. A strong fiscal framework should not simply focus on reducing borrowing; it should also support sustainable economic growth, encourage investment and ensure that future generations are not left with an unsustainable debt burden.

The Government have responded to the committee’s recommendations by defending their existing rules and arguing that their reforms provide an appropriate balance between fiscal discipline and flexibility. I would argue that the Government should remain open to the committee’s proposals, particularly on debt reduction and maintaining a large fiscal buffer.

To conclude, the central message of the report is straightforward. Fiscal responsibility must be measured not simply by whether a Government meet their targets today but whether they leave the country’s public finances stronger and more sustainable tomorrow.