LONDON: The British government should stop derailing tax and spending plans to meet fiscal targets and instead adopt a more flexible system for assessing public finances, a think tank said on Thursday.
The Institute for Fiscal Studies said the government’s fixation on the amount of slack it has to meet its targets has led to dysfunctional policymaking.
Finance Minister Rachel Reeves is on track to balance daily public spending with tax revenues by 2030, but only if she implements planned tax increases over the next few years, but analysts say that is unlikely with an election scheduled for 2029.
The previous Conservative government announced huge spending cuts for the future, which the former head of Britain’s budget watchdog described as “worse than fiction”.
The IFS said in its report that a broader range of indicators would provide a better picture of the overall fiscal situation and reduce incentives for governments to distort policy.
“Breaking the obsession with ‘fiscal space’ could also provide the basis for a more meaningful discussion about the fiscal opportunities and challenges facing the country,” said Ben Zaranko, IFS associate director and author of the report.
Under the proposal, the finance minister would set the fiscal strategy, which would provide broad direction rather than precise numerical targets and would be updated regularly.
Various indicators such as borrowing, debt, and interest on debt are evaluated by the Office for Budget Responsibility using a red, yellow, and green traffic light system.
The IFS acknowledged that the changes could make it easier for politicians to borrow excessively, but said the trade-off was justified by a less dysfunctional approach to fiscal policy-making. (Author: William Schaumburg)
