Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Baroness Wolf of Dulwich Excerpts

Tuesday 3rd November 2026 Grand Committee

[Baroness Wolf of Dulwich (CB)]

My Lords, as a member of the committee that produced this report, I express my gratitude to the noble Lord, Lord Wood, and to the committee staff. I thank the noble Lord, Lord Liddle, for his excellent chairmanship of the committee and his opening remarks.

I shall make four points. First, when our committee decided to undertake this inquiry, the OBR was experiencing unprecedented levels of publicity and criticism. You would have thought it was directly responsible for the country’s challenging and deeply worrying fiscal situation, rather than consisting of analysts and messengers. A year later, after another Budget, that seems no longer to be true; if there were widespread attacks this year, I missed them. I think that this is because, in the meantime, and in no small part because of the OBR’s work, far more people are aware of our ever-growing national debt and the state of our public finances.

However, while this growing recognition in Westminster and the country is welcome, we are not doing anything very significant about it. To quote the executive summary of the OBR’s own October report, in classically somewhat bland language:

“The UK’s economic and fiscal position remains very challenging”.


It points out that weak growth and government borrowing have resulted in a sharp increase in government debt while debt interest spending is expected to grow yet again by billions of pounds.

Observers of the Budget regularly point out how bizarre it is that so much time and national attention goes on whether or not the Chancellor of the Exchequer is using up her or his headroom, an amount that is a tiny proportion of total public expenditure. However, the reason for this is that we are in fact in hock to the bond markets and in an unnecessary situation where small changes in interest rates are a major daily concern for the Government because of their impact on total debt interest.

Secondly, it is perfectly possible to reduce the national debt. In 1946, after the Second World War, the national debt reached 252% of GDP, but by 2006 it was down to 36%. As our committee has argued in this report, and in its previous 2024 report on debt, we really have to act.

Thirdly, I underline the hugely valuable work done by the OBR in producing its Fiscal Risks and Sustainability reports. As we said in our report, these reports get far too little attention, but, if you want to understand what is going on with the public finances, they are an essential source; I commend them to everybody.

Fourthly, there is a concrete change that this Government and future Governments could, and should, make; in my view, it is the single most important recommendation in this report. The Government should set out an additional debt target that will show cumulative performance over three years, such that, in normal times, debt in the third year is lower than in the first year. That should be easily monitored and clearly understood by the general public. However, this has not been our recent experience. This October’s economic and fiscal outlook predicts that, in 2029, public sector net debt as a percentage of GDP will, again, be significantly higher than was forecast just six months ago.

We are hardly the only people to observe that, all too often, the current and recent fiscal rules allow ample room for gaming the debt target. As a former member of the Budget Responsibility Committee confirmed to us, as a witness,

“you can have debt rising for ever”

and still meet most of the targets that the Government have set for themselves and observe their rules. The committee criticised this situation in 2024, but nothing happened. We called for change in this report, but the Government’s response to our report said:

“The Government has been clear that the fiscal rules are non-negotiable”—


end of subject. Well, the rules may be non-negotiable, but it is beyond time for them to change and for them to be discussed publicly and widely. We need a cross-party commitment on our fiscal framework, including a clear, easily monitored commitment to ongoing debt reduction—and sooner rather than later.

National Debt: It’s Time for Tough Decisions (Economic Affairs Committee Report)

Baroness Wolf of Dulwich Excerpts

Friday 25th April 2025 Lords Chamber

[Baroness Wolf of Dulwich (CB)]

My Lords, I thank the noble Lord, Lord Bridges, for his truly excellent chairing of the Economic Affairs Committee and this inquiry, and for his opening remarks. This report has indeed, unfortunately, become even more relevant than it was last September. I will highlight three rather general lessons I took away from the inquiry and report, which are to do with public awareness, borrowing for investment and fiscal rules.

First of all, we take far too little notice as a nation of either the levels of public sector net borrowing or the cost of servicing debt. The Government should, in my opinion, highlight them more, not continue to avoid the subject. Many people do not understand just how much Covid cost, nor the implications of this for future investment. It is not just the rise in net debt, nor our consistent pattern of net borrowing. The level of debt interest spending relative to both GDP and revenues, illustrated very vividly in figure 4 of the report, is what should really hit home with the public. That shot up in 2022-23 to a post-war record. Although it has fallen a little since, the latest OBR forecasts show it staying very high over the next five years, as other noble Lords have pointed out. The public debate about priorities and patterns of government expenditure very rarely refers to debt servicing. I question how many people, even in the policy community, realise that almost 10% of government revenue currently goes on debt interest spending. They should, however, and Governments faced with difficult decisions would do well to emphasise this and not continue to ignore and run away from the situation.

Clearly, all of this matters much less if the underlying economy has grown, as other noble Lords have noted, and that brings me to my second point, which is the almost mythic nature of the idea that we should borrow only for investment—something for which our report did not have a great deal of time. The subtext here is that if it is investment, it will pay in the future and therefore generate growth and so solve the revenue problem. I think this is hopelessly optimistic. Investment can be hugely wasteful and pointless, as the Soviet Union used to teach us.

Moreover, human capital—the skills and knowledge of the workforce—is just as important for the economy as physical capital; a school building is useless without good teachers in it. The problem is that, once you start down this road of having particular types of spending which are different, you can easily classify huge parts of government spending as investment. One of our witnesses asked, “Why not nurses’ wages?” Of course we should spend on infrastructure—I share the enthusiasm of the noble Lord, Lord Liddle, for northern connectivity as well as the Oxford-Cambridge link—but this is where I disagree with our new excellent chairman, the noble Lord, Lord Wood: we should not be seduced by the idea that borrowing for investment is different and does not count.

One reason I feel that is related to my third and final point: the influence on government thinking and behaviour on specific fiscal rules. Fiscal rules—whether they are to do with investment, moving towards a reduction in the debt level or whatever—inevitably and constantly focus governmental attention on the rules and not the underlying patents. I had a short period in government, during which I was struck by the obsession with whether the OBR will score something. I would ask, “Will this particular policy help the Treasury make its case that it is actually going to meet the fiscal rules?” The extent to which rules undermine sensible policymaking was a recurrent theme in the inquiry for very good reasons. We badly need to move away from a narrow focus on them and towards a much broader approach, as our report argues.