Budget Resolutions

Andy MacNae Excerpts

Tuesday 2nd December 2025 Commons Chamber

[Andy MacNae (Rossendale and Darwen) (Lab)]

Our fiscal framework is not working. This is the structure that is supposed to manage compliance with our fiscal rules and deliver stability and confidence, yet we are seeing quite the opposite. Our current framework is leading to speculation, policy volatility and short-termism, so is there a better way?

The fundamental problem with the current framework is that it requires the OBR to make binary pass-fail judgments on whether the rules are being met, using highly uncertain forecasts of what the economy might look like in 2029. To compound that, the OBR is allowed to count only the impacts of policies that have a high degree of certainty and evidence. That means that for anything new and innovative, it is likely that only the costs, not the benefits, will be included.

On the one hand, we have the requirement for a binary pass-fail judgment; on the other hand, we have massive uncertainty and significant exclusions within the forecast. How are those compatible? The honest truth is that they are not, but that is what the rules currently require, so focus turns to the midpoint of a probability range, which is called a central point estimate. It has no economic meaning beyond being the midpoint. The OBR openly acknowledges that the number has

“essentially no chance of being the actual outcome”,

yet it is used as if it is the forecast, giving rise to statements such as, “The Chancellor has £9.9 billion of headroom.” Taken at face value, such statements fundamentally misrepresent the inherent uncertainty.

The forced pass-fail system and excessive focus on point estimates has real-world consequences. For a start, binary judgments risk binary responses. A marginal fail is seen as a crisis requiring immediate action, whereas a marginal pass is taken to imply that everything is fine. Given the massive uncertainties in the forecast, the reality is that there is actually no difference between the two situations. Overall, this pressure for lurches between crisis and complacency, driving policy recalibrations in response to binary judgments or changes to forecast methodology, is simply not conducive to policy stability.

There is also a damaging effect on policy design. A pass-fail mindset inevitably incentivises funding policies that deliver easily quantified impacts within the forecast timescale while discouraging longer-term, less quantifiable ones. That is especially problematic for the kind of policies we really need the most—those that prevent ill health, reduce worklessness and manage long-term liabilities. It is essential to address all those areas if we want to bring down debt over the long term. All that inevitably dampens investment and is bad for growth, and speculation and policy volatility are hardly good for bond rates either.

Is there a better way? Many economists and institutions believe so. We need to recognise the really important step that the Chancellor took in this Budget; moving to a single formal assessment each year reduces speculation and policy volatility. That is a significant step and, as it will require the charter for Budget responsibility to be amended, it opens the possibility of further positive change. One such change is that from 2027, the charter introduces a tolerance range for the borrowing rule of plus or minus 0.5% of GDP. That is a big improvement, but there is a strong argument for bringing it forward to 2026 and considering a range for the debt rule too.

We could go further. The Institute for Fiscal Studies is exploring a traffic-light approach based around compliance with a wide range of Budget policy objectives. Thinking about longer-term risk management, we could do a lot more to capture the long-term costs of inaction and show how we are offsetting future risk and bringing down long-term debt projections. Proposals have also been made about reforming the OBR’s overall remit and methodology, along with revising the role of the Treasury, which rightly poses fundamental questions about the best tools for judging compliance.

Our fiscal rules are vital. Maintaining fiscal discipline is an inherent part of delivering a virtuous cycle of investment, growth and renewal, but there is broad agreement that our fiscal framework, with its reliance on highly uncertain forecasts and pass-fail requirements, is leading to speculation, policy volatility and short-termism. We all pay for that through higher borrowing costs and depressed growth. It is clear that there is a better way that could provide greater stability and enable us to meet fiscal rules and build headroom, while incentivising long-term growth and demand reduction policies. That is what we should strive for, and the time to make it happen is now.