LONDON, Feb 19 (Reuters) – British governments should stop gaming their tax and spending plans to meet fiscal targets and adopt a more flexible system for assessing the public finances instead, a think tank said on Thursday.
The Institute for Fiscal Studies said a fixation on the amount of headroom governments have for hitting their targets was contributing to dysfunctional policymaking.
Finance minister Rachel Reeves is on track to balance day-to-day public spending with tax income by 2030 only if she goes through with planned tax hikes in the next few years that analysts see as unlikely with an election due in 2029.
The previous Conservative government set out deep spending cuts for future years that were described by the former head of Britain’s budget watchdog as “worse than fiction”.
The IFS said in a report that a broader set of indicators would give a better picture of the overall fiscal position and reduce the incentive for governments to contort policy.
“Breaking the obsession with ‘fiscal headroom’ might also provide the basis for a more meaningful debate about the fiscal opportunities and challenges facing the country,” Ben Zaranko, associate director at the IFS and author of the report, said.
Under the proposal, finance ministers would set out a fiscal strategy – giving a broad direction of travel, rather than precise numerical targets – which would be regularly updated.
A range of indicators – including borrowing, debt and debt interest – would be assessed by the Office for Budget Responsibility using a red–amber–green traffic light system.
The IFS acknowledged the change might make it easier for politicians to borrow too much but said a less dysfunctional approach to fiscal policymaking justified the trade-off.
(Writing by William Schomberg)
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