Beyond headroom: Why we need a better fiscal framework to fix the UK’s long term problems

Fiscal rules exist to assure markets of responsible budgeting and fiscal sustainability, and hold government to account. But over the years, UK rules have been chopped and changed multiple times, somewhat weakening markets’ reliance on them. Moreover, current fiscal rules have focussed the minds of the public, politicians and markets on narrow concepts of what it means to be fiscally sustainable, usually looking at ‘headroom’ against whichever rule is currently in place. 

In this report, we go back to first principles and ask: what actually is fiscal sustainability? How should citizens and markets assess it? And what are the principles that governments should follow to achieve it?