Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Bilimoria Excerpts

Tuesday 3rd November 2026 Grand Committee

[Lord Bilimoria (CB)]

My Lords, the Economic Affairs Committee report, Fortifying the Fiscal Framework, was done in April 2026. To summarise, it said that the UK was

“on a path to unsustainable debt”,

and it urged the Government to introduce a rule to ensure that debt falls in normal times and permit a larger fiscal buffer. The Government’s response is that the rules strike an appropriate balance and their fiscal buffer provides flexibility against future shocks—surprise, surprise.

I congratulate the noble Lord, Lord Liddle, the noble Lord, Lord Wood, who was chair at the time, and the members of the committee on their report. If you look at the fiscal headroom, the figure that we just talked about, it was £9.9 billion in March 2025, £21.7 billion in November 2025, £23.6 billion in March 2026 and £15 billion in 2030, according to the latest Budget. In context, on the headroom, the average buffer has been over £30 billion from 2010 until 2022. The Office for Budget Responsibility’s average forecast error is £54 billion. Borrowing is 4.4% of GDP in 2025-26, falling to 1.8%, which is £18 billion higher than March’s forecast—some £65 billion over the period. National debt is approaching 100% of GDP. If you look at the other measure on the public sector, the PSNFL, it is 83.2%. Debt interest is now £124 billion, which is £14 billion more than forecast in March, and is more than defence, policing and prisons combined. It is forecast to go up to £147 billion by 2029-30.

The tax burden is the highest on record, at 38.5% of GDP. This is the highest since records began in 1948. Of course, tax never ever matches spending, and spending is 44.3% of GDP in 2025-26. There is therefore a constant deficit but, as we know—and this is surprising, given the backdrop of the geopolitical situation, the challenges we are facing, and the figures I have quoted—we are still managing to grow at about 1% a year: 1.2% this year, 1% next year, and cut from 1.6% because of the Iraq war. The 2% inflation target is now meant to peak at 3.8% in quarter 1 next year. On gilt yields, 10-year gilts were 5.32% on Budget Day, which was the highest in the G7, and 30-year gilts hit 6.04% on 7 October, the highest since January 1998. Greece borrows at a cheaper rate than we do as a country. In the long-term projection, and this is the scary figure, debt is heading for 300% of GDP by 2075-76, on an unchanged policy. There has been rule churn, with nine sets of rules since 2008, and 28 since 1997. The average rule since 2010 lasted just 1.8 years.

Where borrowing is concerned, we are scared about this 100% figure, and we should be. To put it into context, at the end of the Second World War, our borrowing was 250% of GDP. After a six-year brutal, horrible war, it reached 250%. It took from 1945 until 1963 to get it down to 100%. Then, in the Gordon Brown years, it came down to 40%. Now we are climbing back up to 100%.

The question before the committee concerns the fiscal rules and the OBR. We have done two major things in recent memory. First, there was the independence of the Bank of England, brought in by Gordon Brown. I think most people would agree having an independent central bank is a good thing and is trusted by businesses and the market. Secondly, the OBR was brought in. Is the OBR doing a good job? Is it forecasting well enough? The £54 billion of average forecast error is quite a frightening thing. The OBR has had a pretty tricky time—for example, leaking its report before Rachel Reeves came to the Dispatch Box, leading to huge embarrassment, the resignation of its director and a new director coming in. So is the OBR a referee, a policeman or a watchdog? Is it to be trusted? I think that on balance we are all going to conclude that yes, it should be there, but is it doing enough when it comes to dynamic scoring? It was agreed that that would probably not work. The OBR’s independence is there to stay.

The noble Viscount, Lord Chandos, spoke about US debt being 130% of GDP, $40 trillion. Its debt interest is higher than its defence spending, which is almost $1 trillion, the highest in the world, and of course it has the dollar as reserve currency.

The bottom line is this: Liz Truss and Kwasi Kwarteng’s Budget in 2022, containing £45 billion of tax cuts paid for by extra borrowing but with no OBR forecast, led to disaster, with the bond markets absolutely reacting. James Carville, Bill Clinton’s adviser in 1993, said:

“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody”.


It is good that we have the OBR and that we have that independence. We must bring down taxes, welfare spending and borrowing and then generate growth. That will generate the jobs that will pay for our public services.