Fortifying the fiscal framework: Lords Economic Affairs Committee report

Approximate read time: 15 minutes

On 3 November 2026 the House of Lords is scheduled to debate the House of Lords Economic Affairs Committee’s report ‘Fortifying the fiscal framework’ (28 April 2026, HL Paper 291 of session 2024–26) in Grand Committee.

1. Key points

• The UK’s fiscal framework includes fiscal rules, a set of targets that the government adopts to constrain its management of the public finances. These rules focus on government borrowing and government debt. The Office for Budget Responsibility is the independent forecaster of the public finances that judges the government’s performance against its fiscal rules.
• The House of Lords Economic Affairs Committee said the UK is on a path to unsustainable debt levels. It argued that the current fiscal rules retain a flaw from previous rules which means that the government’s debt target can be met by promises of policy action that are never fulfilled. Debt could therefore continue to rise. It also said frequent changes to the rules undermine market confidence in the government’s behaviour.
• The committee recommended that the government set out an additional debt target to ensure that debt falls in normal times. It also said the government should commit to a substantially larger fiscal buffer.
• The government said it had made significant reforms to strengthen the fiscal framework since 2024. It argued that the current fiscal rules strike an appropriate balance between the near-term and the medium-term. It said the November 2025 budget had increased fiscal headroom and would provide flexibility to respond to future shocks.

2. Background to the UK’s fiscal framework

The Economic Affairs Committee defined the ‘fiscal framework’ as “the institutional framework and legal provisions governing how budgetary policy is planned, decided, implemented, constrained by rules and scrutiny processes, monitored and evaluated”.^[1]

Since 1997 the UK’s fiscal framework has included fiscal rules, a set of targets that governments have adopted to constrain their management of the public finances. These rules have generally focused on government borrowing and government debt. Fiscal rules have been a requirement since the Budget Responsibility and National Audit Act 2011, introduced by the Conservative-Liberal Democrat coalition government. This act also established the Office for Budget Responsibility (OBR)—the independent forecaster of the public finances—to judge the government’s performance against its fiscal rules.^[2]

The details of the OBR’s forecasts are published twice a year in its ‘Economic and fiscal outlook’ (EFO) publications.^[3] These are published alongside the budget statement (usually in autumn) and the spring forecast (usually in March). The OBR also publishes an annual ‘Fiscal risks and sustainability’ (FRS) report, which provides its assessment of the long-term sustainability of the public finances.^[4] The most recent FRS report was published on 7 July 2026.^[5]

The fiscal rules adopted in 1997 applied for over a decade but since 2009 they have changed frequently.^[6] The current fiscal rules are set out in a ‘Charter for budget responsibility’ published by the Treasury.^[7] The Treasury’s “mandate for fiscal policy” states that the budget for day-to-day spending must be forecast to be in surplus—or a deficit of no more than 0.5% of gross domestic product (GDP)—in 2029/30 until 2029/30 becomes the third year of the forecast.^[8] From that point, the budget for day-to-day spending must be forecast to be in surplus in the third year of the rolling forecast period.

In October 2026, the OBR forecast that the government would meet its current budget rule by a margin of £15bn in 2029/30.^[9] The margin is sometimes referred to as ‘fiscal headroom’. The committee report also referred to it as “fiscal buffer”.^[10] Since the founding of the OBR in 2010, the amount of fiscal headroom left by chancellors has varied, with average headroom since March 2022 lower than the average of the 12 years prior.^[11] Although the November 2025 budget increased headroom to its highest level since March 2022, the October 2026 budget reduced the headroom from £22bn to £15bn.^[12]

The government’s target for day-to-day spending is supplemented by two further targets:^[13]

• Debt, defined as public sector net financial liabilities (PSNFL), must be falling as a share of the economy by 2029/30 until 2029/30 becomes the third year of the forecast period. From that point, debt should fall by the third year of the rolling forecast period.
• Welfare spending must be contained within a predetermined cap and margin set by the Treasury.^[14]

Following the election of the Labour government in July 2024, it introduced the Budget Responsibility Act 2024 which requires that any “fiscally significant” announcements made by the government be assessed by the OBR. In the Finance Act 2026 the Starmer government legislated so that the OBR assesses performance against fiscal rules only once a year at budgets, while the OBR continues to publish a second annual forecast each spring.

The Starmer government made other changes to the fiscal rules including a move to a three-year horizon for its day-to-day spending and debt rules—from the previous Conservative government’s five-year horizon—and a change in the definition of debt.^[15]

3. Committee findings and recommendations

The House of Lords Economic Affairs Committee launched its inquiry into the UK’s fiscal framework in October 2025, issuing its call for evidence on 24 October 2025.^[16] It published its report, ‘Fortifying the fiscal framework’ on 28 April 2026.^[17]

The committee identified the government’s fiscal rules and the OBR as two of the most important elements of the fiscal framework.^[18] It argued that the current fiscal rules retained a “notable flaw” from previous fiscal rules—it said the requirement for debt to be falling by the third year of a rolling forecast meant that the debt target could be met by promises of policy action that were never fulfilled. As a result, debt could continue to rise. The committee said the government’s move from a five-year to a three-year rolling target for debt reduction was “welcome” because it meant that the government had to be clearer about its deficit reduction plans.^[19] However, it said this change was “insufficient”.^[20]

The committee also argued that frequent changes to the fiscal rules were a problem because they undermined market participants’ confidence in the government’s long-term behaviour. It said there was an “excessive focus” on “short-term rule compliance” rather than “longer-term trends”.^[21] It criticised small “fiscal buffers” for leaving compliance with the fiscal rules dependent on “the implausible absence of […] modest forecast errors” by the OBR.^[22]

The committee said the OBR was a “valuable component of the fiscal framework” and that descriptions of the OBR as “policing government policy” were “misguided” because the government was free to disagree with the OBR and set policy accordingly.^[23] It said the government should implement policies it believes to be beneficial even if the OBR chooses not to account for those policies in its forecasts.

The committee said the UK is “on a path to unsustainable debt levels” which should be of “paramount concern” for the government.^[24] It argued that debt must be falling in normal times so that the country is able to respond when crises occur.

The committee’s specific recommendations included:

• Setting out an additional debt target: The committee said the government should, in normal times, target debt in the third year of the forecast to be lower than in the first year.^[25] It argued that this would add “credibility” to the existing target.^[26]
• Committing to a substantially larger fiscal buffer: The committee said the size of the government’s fiscal buffer should reflect the unavoidable errors in the OBR’s forecasts used to judge the government’s performance against its fiscal rules.^[27]
• Formulating new fiscal rules only as part of a “concerted, in-depth consultation”: To avoid undermining the fiscal framework’s credibility, the committee said any further modifications to the rules must be seriously considered only within this context and in a period where there is no “formal political campaigning”.^[28]
• Continuing to require two OBR forecasts per year but changing the spring forecast’s timing: The committee said carrying out two forecasts per year was in line with international best practice.^[29] However, it said the timing of the spring forecast should be changed so that the length of time between the two forecasts is closer to six months. The committee also said any revisions to the OBR’s forecasting approach should be made in advance of the EFO to allow the government time to reflect on compliance with the fiscal rules.^[30] The committee said the OBR’s forecast should continue to take the government at its word on the policies it would implement.^[31]
• Responsibility for the forecast remaining with the OBR: The committee said responsibility for the forecast should remain with the OBR but that the OBR and the government should “continually work to improve cooperation between relevant teams”.^[32] However, it said the OBR should not score election manifestoes because there is already a framework for economic debate during an election period which includes assessments produced by other organisations, and the OBR’s EFO and FRS reports.^[33]
• Committing to responding “fully and adequately” to the OBR’s FRS report: The committee said this should include setting aside parliamentary time for debate.^[34] The committee also said the OBR should continue its efforts to generate greater interest in the report.^[35]

4. Government response to the report

The government published its response to the committee report on 24 June 2026.^[36] It said it had made “significant reforms to strengthen the fiscal framework” after it was elected in July 2024, including setting fiscal rules that it said would “put debt on a sustainable path” and prioritise investment to support “long-term growth”.^[37] It said it had committed to one “major fiscal event” per year and regular multi-year spending reviews.^[38]

The government argued that it had put in place a “fiscal lock” that would ensure that future governments could not “sideline” the OBR.^[39] It said it was improving the transparency of spending information the Treasury shares with the OBR. It said it was committed to considering “a wide range of metrics” to inform a “full assessment of the sustainability of public finances” and to improve sustainability over time.^[40] In addition, the government said it was requiring the OBR to report on the long-term economic impacts of capital investment and government policies.

The government argued that its strategy was working by pointing to a 1 percentage point fall in the budget deficit as a share of GDP. It noted that net financial debt was forecast to be lower in 2029/30; and it was maintaining over £120bn in additional capital investment over the course of the current parliament compared to the previous government’s plans.^[41]

The government also addressed each of the committee’s specific recommendations:

• Setting out an additional debt target: The government said the current fiscal rules strike an “appropriate balance” between a “medium-term anchor” and allowing for “near-term adjustments”.^[42] It said the rules set a “minimum constraint” and that the debt rule was on course to be met a year early.^[43]
• Committing to a substantially larger fiscal buffer: The government said its November 2025 budget had increased headroom to the “highest level in four years” which it said would provide flexibility to respond to shocks.^[44]
• Formulating new fiscal rules only as part of a “concerted, in-depth consultation”: The government said the fiscal rules are set by the chancellor and are “non-negotiable”.^[45] It said the rules are legislated for through the government’s charter for budget responsibility which is voted on by the House of Commons and is therefore subject to parliamentary debate and scrutiny. It noted that the Treasury “regularly engages” with stakeholders and experts.^[46]
• Continuing to require two OBR forecasts per year but changing the spring forecast’s timing: The government said it welcomed the committee’s support for its policy to have two official forecasts and one fiscal event per year.^[47] The government said it does not comment on the specific dates for OBR forecasts until they have been announced to Parliament and the OBR has been “appropriately notified”.^[48] It noted that decisions on timings were taken by the chancellor.^[49] In terms of the OBR’s forecasting approach, the government said the OBR is legally required to annually assess the accuracy of its previous economic and fiscal forecasts. The government agreed that the OBR should continue to take government policy as stated.^[50]
• Responsibility for the forecast remaining with the OBR: The government agreed that the economic and fiscal forecast should be produced independently by the OBR.^[51] It said the Treasury had a “close, collaborative” working relationship with the OBR at ministerial and official level.^[52] The government also agreed that the OBR should not take a greater role in scrutinising manifestos.
• Committing to responding “fully and adequately” to the OBR’s FRS report: The government said its updated 2024 charter for fiscal responsibility had recommitted it to publishing a full response to the FRS report within a year and noted that its full response to the 2025 FRS was published alongside the 2025 budget.^[53] It said the OBR had full discretion on how it prepares its reports but the government welcomed the focus on long-term issues.^[54]

5. Read more

• House of Commons Library, ‘The UK’s fiscal targets’, 9 March 2026, updated 23 June 2026
• House of Lords Library, ‘UK fiscal outlook: September 2026’, 3 September 2026
• Institute for Fiscal Studies, ‘From fiscal rules to fiscal traffic lights: Rethinking the UK fiscal framework’, 19 February 2026; and ‘IFS fiscal traffic lights: An explainer of indicators and thresholds’, 27 October 2026
• Thomas Pope et al, ‘Current UK fiscal rules’, Institute for Government, updated 19 November 2024

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