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The fiscal framework

The UK’s fiscal framework sets out the Government’s basic policy for managing the public finances. This policy is often known as the Government’s fiscal policy and it is set out in the Charter for Budget Responsibility (the Charter). The Treasury is required to publish the Charter under the Budget Responsibility and National Audit Act 2011.

Amongst other things, the fiscal framework sets out the Government’s objective for manging the public finances and its targets for meeting the objective. The targets are often referred to as the fiscal targets or fiscal rules.

The fiscal framework has been under review since spring 2020. Work on the review was put on hold given the economic uncertainty caused by the coronavirus pandemic. As at Spring Budget 2021, the framework remained “under review”.

The UK’s fiscal targets

Since the 1990s UK governments have adopted fiscal targets to guide and constrain fiscal policy.

The current legislated fiscal targets are set out in the the Charter. However, since the 2019 General Election, the Johnson Government’s budgets have not aimed to meet these targets.

While the Johnson Government hasn’t yet legislated for new fiscal targets – largely due to the coronavirus pandemic – it appears that the Chancellor, Rishi Sunak, favours an approach in which:

  • government doesn’t borrow to pay for day-to-day spending, in the medium term. This means that the ‘current budget’ is in balance or surplus
  • some borrowing is allowed for investment spending
  • plans can change if debt interest costs rise
  • public sector net debt is stabilised, in the medium term

It’s expected that the Government will begin the process of formalising new fiscal targets at Autumn Budget 2021. To change the legislated targets, the Chancellor must lay a revised Charter before Parliament for the House of Commons to approve.

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