Isn’t it time for fiscal Britain to grow up?
It’s now been almost two months after the UK’s autumn budget came out amidst a tiny bit of turmoil. I won’t address here the fiscal policy questions, nor the politics of the budget event. Ed covered both at the time and I have little to add to his analysis. His point about the triumph of the meta-argument holds up, although a more substantive discussion has developed in the aftermath. My interest is in the institutional issues the budget raised.
A quick recap. The Autumn Budget, one of Britain’s two headline fiscal events, was presented in Parliament on November 26 last year. The Chancellor had been in a difficult position between the government’s manifesto pledge not to raise any of the important taxes, pressure to increase spending (especially investment), and pressure to contain the deficit. There was much anticipation in the run-up whether the budget would in fact break the tax pledge, which had first been heavily hinted at, but was later walked back.
In the event, much of the coverage of the day went to the accidental publication of the independent assessment of the Office of Budget Responsibility (OBR) a couple of hours ahead of schedule. The reason was neither a deliberate leak nor a hack, but what is perhaps best described as an uploading blunder. Still, OBR Chair Richard Hudges resigned the following week. The OBR is still a young institution (having been created in 2010) and had been under fire from various quarters. Worries that anything less than a zealous accounting of the episode might damage the institutions are not unfounded. The Treasury has since turned its attention to combating pre-budget leaks.
Looking at this from beyond the Channel, the drama seems both excessive and misguided. Yes, it would be a blunder anywhere if a major government announcement was disrupted like that. Yes, any such disclosure merits investigation when it can significantly affect market movements. And yes, other countries punish civil servants who leak official information and it is entirely sensible for some internal government deliberations to remain just that. However, neither fretting over gaps in budget secrecy nor taking aim at the OBR are remotely helpful for the UK’s fiscal governance. They’re not even that relevant.
Budget secrecy is one of those British fiscal traditions that deserve scrutiny, not reverence, as fun as it is to talk shop about jargon and anecdotes. It used to be that purdah descended upon Westminster, only to be lifted when the Chancellor stepped outside No. 11 with a tattered red box in hand. Even Chancellors had to resign over letting slip information before Parliament had heard about it first. But what is the point at a time when much spending is locked in through multiannual settlements anyway?
What’s in the box, Mr Gladstone? (Image: The National Archives UK)
Does it really make sense for major tax changes to be sprung on the public like a Steve Jobs product announcement? Wouldn’t it be altogether more desirable for market actors, government stakeholders and the public if major revenue and expenditure decisions were so well debated when the budget lands in Parliament that there wouldn’t be any surprise at all?
For those of us more familiar with coalition governments it is wild to imagine the finance minister getting up in the legislature with a bagful of budget surprises, daring members to either swallow the budget whole or bring down the government. Few finance ministers would try, and fewer prime ministers would let them and expect to still be in office by the end of the day. The political negotiations and policy debates among coalition parties would be all over the press. Besides, in countries with stable fiscal governance, politicians often have the good sense to not reopen the budget settlement with some new scheme every few weeks (yes, I’m looking at you, Germany).
Which brings us to the crux of the matter. The most important issue with fiscal governance in the UK is the combination of a Westminster, majoritarian system (where Parliament is liable to be weak in budgetary matters) with the absence of many of the legal and institutional guardrails that can make the budget process more stable and predictable. To oversimplify, if the Chancellor wants to change the budget calendar, or alter the way departments are allocated funding, that’s what’s going to happen. There is no PFM (or budget system) law, and of course no written constitution. Instead, the “fiscal constitution”, such as it is, consists of norms, precedents, and prerogatives, fills entire volumes of (excellent and interesting) analysis. The only guardrail is ultimately a political one, sacking by the PM, but that is a very high bar indeed.
Listening to Treasury alumni, one quickly gets the sense that nothing less than a full suite of discretionary powers will do to maintain fiscal sustainability. The impulse is understandable. Budgeting is hard enough as it is, so why introduce additional complications? But that is to make a category mistake. UK discussions about the role of the Treasury quickly get stuck into whether its staff should be made less “orthodox”, or its wings should be clipped somehow, maybe by splitting it up or by strengthening the Cabinet Office. But those are separate questions.
In that spirit, here are my three modest proposals for how the UK could improve its fiscal governance and bring it closer in line with many of its OECD peers:
1. Strengthen the capacity and capability of the OBR. In the first years after 2010, having any independent fiscal institution was an extremely interesting development in the UK. There isn’t much of an incentive to have such a body in a system where one party heads the government, the finance ministry, and holds a legislative majority. But under a coalition (as was the case in the UK in 2010-15), the OBR could serve to “neutralize” the year-to-year fiscal framework. Since then, the OBR was far from the all-powerful arbiter of fiscal policy. Rather, its work cast an uncomfortable spotlight on the flaws in the UK’s fiscal position, especially after 2016. International reviews in 2020 and 2025 made recommendations to strengthen the OBR’s work. The 2025 review would be a great starting point for a package to strengthen the OBR. In light of recent events, perhaps add funding for a beefed-up IT department.
2. Either adopt a proper fiscal rule or a fiscal strategy. The IMF defines a fiscal rule as a permanent constraint on the budget. According to one recent count, there have been 10 different “fiscal rule” sets (28 rules in total) in operation in the UK since 1997. Plainly those are not fiscal rules, they are fiscal policy targets that don’t survive the tenure of the government (or even the Chancellor). By insisting they are in fact rules, governments have ended up getting the worst of both worlds. They are boxed in by the specific conditions of the “rule”, which unlike a fiscal strategy can only be broken when circumstances change, but without the long-term credibility of an actual fiscal rule.
One option would be to find a way to embed a fiscal rule in such a way that it would survive changes in government and serve as a credible long-term framework. Presumably that would involve some form of legislation and cross-party support. Alternatively, governments could announce a fiscal strategy at the start of a parliamentary term, have it assessed in detail (and subsequently monitored) by the OBR. It would be somewhat similar to the current setup, but without the conceit that the fiscal strategy has any relevance beyond the next election. At the end of the Parliament, not just the OBR (or the NAO), but any fiscal analyst could pass judgement on how well the government has done.
3. Pass a budget system law. Yes, there are bits and pieces of legislation that form part of fiscal governance, notably the Budget Responsibility Act and the Government Resources and Accounts Act. But there is no overarching legislative framework that ties together budget objectives, roles and responsibilities, the budget calendar, and other key elements of fiscal governance. Continental European countries usually have budget system laws, most notably France’s Loi Organique relative aux Lois de Finances and the German Haushaltsgrundsätzegesetz. But most countries in the Westminster tradition also have budget system laws, including South Africa, Australia, and New Zealand, all of which were first adopted last century. In fact, the UK is a notable outlier in this regard. The argument that such legislation is somehow incompatible with the UK’s fiscal constitution and/or traditions does not really hold water. Over the past three decades, international organizations have developed ample material on how to think about drafting and reforming budget system laws, so guidance is available and plentiful.
A British Budget System Act would be an opportunity to (1) fill in the gaps between existing legislation and informal norms, (2) create a comprehensive budget calendar for fiscal events, forecasts, all stages of the budget cycle and covering aggregates, revenues and expenditures, and (3) have a debate about the division of roles and responsibilities between Treasury, spending departments, Parliament, and (semi-) independent bodies. Doing so would not weaken the Treasury, in fact, it ought to strengthen fiscal sustainability, by removing uncertainty and solidifying long-term expectations. To enumerate roles and responsibilities does not necessarily weaken any one actor in a system, it just makes it clear where everyone stands. If nothing else, a budget system law is the place to embed legislation for the OBR and fiscal strategy (or fiscal rules) in the context of the whole budget system.
Finally, a big disclaimer. I don’t usually make recommendations without being asked. Apart from being politically infeasible, these ideas might well be precisely wrong. That said, I am confident that discussions about budget secrecy are a waste of time at best, and that the UK has a lot to learn from fiscal governance in other countries, especially its Westminster peers.