Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Burns Excerpts

Tuesday 3rd November 2026 Grand Committee

[Lord Burns (CB)]

My Lords, I thank the noble Lord, Lord Liddle, for his introductory remarks to, again, a report to which I do not think he contributed when we wrote it. As he mentioned, I was a member of the committee during the investigation. I thank the noble Lord, Lord Wood of Anfield, for chairing the committee during that period, and I wish him well in his new tasks. It is a great pleasure to follow the noble Lord, Lord Redwood; I agree with much of what he has said today.

I want to discuss, first, the OBR’s role in budget-making, and, secondly, whether the fiscal rules are really helping. The OBR has recently been getting a tough press from some corners about its role. I regret this; I must declare an interest as a past chair of the oversight committee of the OBR. Releasing the forecast early last year was clearly an embarrassing mistake. Anyone who has been involved in forecasting knows that all forecasting is difficult, particularly when we have a background, as we have had, of unexpected military conflicts. However, the OBR basically does what it is asked to do in the legislation that set it up. At Budget time, it produces forecasts, offers an independent view of the impact of various Budget measures and provides an opinion on whether the Government will meet their own rules. Separate from the Budget, it also gives its opinion on whether the long-term fiscal outlook is sustainable on present policies, which has already been mentioned.

There is nothing to stop the Government producing their own forecasts in parallel. They can dispute the longer-term effects of policy measures. They can also change the fiscal rules, as we have often seen them do in the past. The suggestion that the OBR somehow dominates the construction of the Budget is simply not correct: it is the Government who set the rules and procedures. For me, the OBR’s value has been its real contribution to impartiality and transparency. It has published much more analytical information than before; it has shown much more of the workings in how it has reached its conclusions; and it undertakes a regular evaluation of its forecasts, providing a public record to all even when they might be embarrassing.

At the same time, we must acknowledge that the 2010 fiscal framework has not been enough to prevent a huge increase in the Government’s debt since 2010, as the noble Lord, Lord Redwood, pointed out. The crucial questions are: how much responsibility lies with the OBR, with the various crises over the past 18 years, or with the specific rules and policies that successive Governments have chosen to follow? There is no time to get into that today, but I will touch on the issue of fiscal rules.

The committee’s report highlights some weaknesses in the rules. The pattern is for the post-Budget forecast to show the debt ratio stabilising or increasing in the first year or two, followed by a decline in the later years. However, this improvement often relies on optimistic public expenditure figures set by the Government, and the projected decline of the debt ratio does not happen; the debt ratio has been stuck at the present level for some years now.

Personally, I am not a fan of short-term Budget rules. The word “rules” seems inappropriate in a world where the likely margin of error around the forecasts is large relative to the fiscal offer. We do not have an inflation rule; we have a target. Why do we have Budget rules? Rules are very difficult to set when there is so much global uncertainty, and the changes that take place inevitably generate suspicion that they are being made to give Governments more discretion and room for manoeuvre.

Governments of course need a strategy for fiscal policy. The committee’s report argues for a greater focus on reducing the debt ratio over time, rather than the endless debate about rules and fiscal buffers. This can be achieved only by bringing down the balance of current spending and income closer to zero. The OBR forecast published last week shows a decline in the deficit, but the question remains: will this be achieved in practice? Once again, the forecast for government spending appears ambitious. Even if it is accurate, the debt ratio is likely to be higher in the final year of the forecast than it was last year.

We now look forward to the forthcoming 10-year plan. It will be another stab at setting out a plan for the future. It is crucial that this next step also includes a compelling pathway to financial sustainability by reducing the debt ratio.