Current UK fiscal rules | Institute for Government

Do these rules always apply?

The Charter for Budget Responsibility allows the Treasury to temporarily suspend the rules in the event of a “significant negative shock”, as Rishi Sunak did as Chancellor during the Covid-19 pandemic, though it does not specify what would constitute such a shock, meaning this is at the Treasury’s discretion. However, unlike previous fiscal rules, if this happens the OBR will be asked to provide its view of how severe the shock is.

If the rules were suspended, the chancellor would need to present to parliament, alongside every subsequent fiscal event, a plan for returning the public finances to a position where the rules could be reinstated.

How do these rules differ from recent fiscal rules in the UK?

In many ways Reeves’ new rules share similarities with past iterations adopted by previous governments.

While the most recent Conservative chancellor, Jeremy Hunt, targeted the overall deficit, chancellors like Gordon Brown, who first introduced fiscal rules, and George Osborne used a rule like the current stability rule, requiring the current budget be in balance in a future year. Reeves’ focus on the current budget should enable governments to continue to spend on investment that will bring long-term benefits, rather than making cuts to investment budgets to satisfy short-term fiscal rules focused on total deficits, as had happened often under the previous government.

Likewise, while previous chancellors, including Sunak and Hunt, also required debt to fall as a share of GDP in a future year, this government is using a different indicator (PSNFL) to measure this.

This government’s move to a three-year horizon, from 2026/27, is another departure, though reverts to common practice of chancellors from 2015 until the pandemic. Longer five-year horizons, like those used by Sunak and Hunt, give the government more leeway: it can be forecast to run large deficits and have debt rising as a share of GDP for most of the forecast horizon.

One interesting innovation, announced by Rachel Reeves in November 2025, is that compliance with the fiscal rules will only be formally assessed once a year, at a budget, not at every fiscal event. This should help chancellors to refrain from over-active policy making in response to relatively small changes in the forecast between the budget and second fiscal event.

How do fiscal rules form part of the broader fiscal framework?

The 2024 Labour government’s updated Charter for Budget Responsibility sets out a broader framework for decision making, of which the fiscal rules are a foundational part. This includes:

1. A ‘commitment to the principle’ of one major fiscal event per year.
2. Spending reviews every two calendar years, setting Departmental Expenditure Limits for a minimum of three of the five year forecast period.
3. The introduction of the ‘fiscal lock’ that was included in the Budget Responsibility Act 2024, meaning ‘fiscally significant’ decisions can be scrutinised by the OBR.
4. Greater sharing of Treasury data on spending pressures with the OBR, and the empowerment of the OBR to forecast overspends against Department Expenditure Limits.

The government has also stated that it will take steps to guarantee sound financial investment using existing and new spending controls. New institutions like the National Infrastructure and Service Transformation Authority and the Office for Value for Money, alongside the National Audit Office, will be given oversight to ensure that capital budgets are well spent and the OBR will conduct analysis of the long-term impacts of capital investments at each forecast.