The major implication is that the debt target becomes easier to adhere to. Our friends at the Institute for Fiscal Studies calculate that this rollover might give the chancellor about £12 billion extra “headroom” to use for tax cuts or spending increases today. Assuming any changes to the Office for Budget Responsibility’s growth forecasts do not swamp this effect, Hunt could conceivably cut another 2p off of national insurance or raise NHS spending by £12 billion, all the while preaching fiscal responsibility for meeting his self-imposed target.
This happened in 2023, in fact, when the fiscal year change between the spring budget and November’s autumn statement bestowed £5 billion extra for Hunt to play with. A repeat this year means the government faces a strong incentive to do another “fiscal event” soon, because it would allow them to provide some pre-election giveaways before we all trudge to the polls, without compromising their notional debt target.
That the change of fiscal year can affect tax and spending policies like this only highlights how silly this rolling debt rule really is. No realities about our tax and spending outlook have improved because we have entered 2024/25. The government is still expected to be borrowing £40 billion in 2028/29. We also still face unsustainable public finances in the longer run, primarily due to an ageing population interacting with the NHS and state pension promises.
Nobody would consider it credible to say you want to quit smoking within five years and then every year push off the deadline by an extra 12 months. Yet that’s analogous to such a “rolling” target for falling debt. Governments can pretty much borrow whatever they like in the interim, so long as they pencil in some (often incredible) restraint five years hence.
Labour leftwingers like to complain that Rachel Reeves, the shadow chancellor, has surrendered to Conservative austerity economics by pledging to maintain this debt target. The truth is that, outside recessions, the debt-to-GDP ratio should be falling most years anyway. A rule that merely promises to achieve that goal within half a decade, without ever requiring a government to do it, is about as weak a commitment to fiscal discipline as one can imagine.
And yet, because the government has adopted this rule, it’s treated seriously. Before every budget or autumn statement, the chancellor’s “headroom” gets discussed earnestly by commentators and politicians, as if debt falling within five years is some sacrosanct, binding constraint. We suffer collective amnesia, all forgetting that the very nature of the target means the can gets continually kicked down the road.
Isn’t it about time we put an end to this charade and adopted more serious rules for budgeting?