- The 2025 Budget process has been absurd. But absurdity is built into the system, driven by a narrow obsession with hitting a particular level of headroom in five years’ time
- Britain has now had 10 sets of fiscal rules since Gordon Brown introduced the concept, none of which survived the Chancellor who imposed them
- Over that time, there have only been three years where a government surplus was run, and debt has increased from 36.7% of GDP to 93.7%
- Since 1990, the state has always ended up spending more than originally predicted. On average, spending has ended up 3.5% of GDP higher at the end of the forecast than predicted – the equivalent of £100 billion today. Including the pandemic years, this jumps to 4.7%
Ahead of Rachel Reeves’ second Budget later this week, new analysis from the Centre for Policy Studies shows that the system of fiscal rules introduced by Gordon Brown in 1997 has failed to improve the public finances, and should be replaced by a better fiscal framework.
‘Britain’s Broken Budgets’ by Daniel Herring, CPS Head of Fiscal and Economic Policy, argues that there are five huge flaws in the current system:
- It embeds ‘deficit bias’, meaning that Chancellors are happy to run deficits during a downturn but fail to save in the good times
- Hard decisions are put off, with loose fiscal policy in the early years of the forecast ‘paid for’ by spending cuts Chancellors have no intention of actually delivering
- Policy is designed around meeting the fiscal rules, not what is best for growth
- The rules are based on a five-year forecasting exercise that is both hopelessly inaccurate and persistently underestimates the growth of state spending
- The rules fail to take proper account of Britain’s long-term fiscal position
In particular, Herring shows that out of 54 medium-term forecasts from 1990 to 2019, actual managed expenditure was always above what was forecast. In other words, there was not a single example of the Government spending less than it originally forecast.
The average overshoot was an extraordinary 3.5% of GDP (the equivalent of £100 billion in today’s terms) excluding the pandemic, or 4.7% if the pandemic is included.
Herring argues that we are trapped in a cycle where Chancellors – including Rachel Reeves – always notionally meet their fiscal targets, but the underlying health of the state’s finances gets steadily worse. That’s because the fiscal rules are not producing decisions that will reduce debt, tackle long-term pressures, or increase the net worth of the state.
The CPS recommends that Britain should learn from countries including New Zealand, Sweden, Germany, and the Netherlands and shift to a fiscal framework which takes into account the whole government financial position and holds governments to account for their financial management.
Daniel Herring, report author and CPS Head of Fiscal and Economic Policy, said:
‘The Treasury has engaged in months of kite-flying and economic contortion to get Rachel Reeves into a position where she hopes to avoid breaking her fiscal rules with this week’s Budget.
‘However, the entire system of self-imposed restrictions has forced every Chancellor since Gordon Brown to prioritise meeting those rules at the expense of policy that would actually improve the public finances.
‘When governments since 1990 have reached the end of their forecast window spending, on average, 3.5% of GDP more than predicted – £100 billion in today’s money – it should be clear that the rules do not work and that Britain’s budgets need saving from them.’
ENDS
NOTES TO EDITORS
- Daniel Herring is Head of Fiscal and Economic Policy at the Centre for Policy Studies
- ‘Britain’s Broken Budgets’ is available to download here
- For further information and media requests, please contact Melisa Tourt on 07399 251110 and [email protected]
- On Wednesday 3 December the CPS is hosting a panel discussion on the Budget with the OBR’s Prof David Miles, Richard Fuller MP, and City A.M.’s Alys Denby. To attend please email [email protected]
- The Centre for Policy Studies is one of the oldest and most influential think tanks in Westminster. With a focus on taxation, economic growth, housing, immigration, and energy abundance, its goal is to develop policies that widen enterprise, ownership and opportunity.
Date Added: Sunday 23rd November 2025
