Post-Covid Fiscal Rules for the UK

Tuesday, October 26, 2021

Question 1: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the level of UK public debt?

Question 2: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the conduct of fiscal policy in the UK?

Question 3: Which of the following variables should fiscal rules target to best improve the performance of the UK macroeconomic policy going forward.

Summary

The majority of the CfM panel of experts on the UK economy thinks that the sequence of fiscal rules in place in the UK since 1997 have caused a material reduction in UK public debt. However, twice as many panellists thought these rules harmed the conduct of macroeconomic policy than those that thought they helped. Going forward, a majority of the panel believes that well designed rules limiting public deficits or debts would best improve the conduct of macroeconomic policy, but nearly a third of the panel would scrap fiscal rules altogether.

Background

The October 2021 CfM survey asked the members of its UK panel to evaluate the performance of UK fiscal rules to date and which rules would best serve the British economy going forward.

Fiscal Rules

A fiscal rule is a constraint self-imposed by a government, setting limits to its tax, spending, and borrowing policies. These typically take the form of limits to public deficits, debt, spending, or interest expenditure. Nearly 100 countries around the world had a fiscal rule in place by 2015 (see the International Monetary Fund’s Fiscal Rules dataset). Fiscal policy is legislated through a political process and a large academic literature shows that politics may lead to more borrowing than is socially desirable (see Alesina and Passalacqua 2016 and Yared 2019 for reviews).

The UK government began experimenting with fiscal rules in 1997, when the Labour government legislated that the current budget (the budget excluding public investment) would be balanced over the course of the business cycle. According to the rule, the national debt was to remain below 40%. The fiscal rule was suspended during the 2009-10 recession and successive governments have amended the rule (The House of Lords and the Institute for Government provide histories of the UK fiscal rule.) A 2011 legislation established the Office of Budget Responsibility (OBR), a non-departmental government body, meant to independent analysis of the UK’s public finances, including the government’s compliance with its fiscal rules. The most recent rule set by the current government in December 2019 reinstated the original aim of running a balanced budget on average, with this target to be met within three years. This was augmented with a cap on public investment (at no more than 3% of GDP) and a requirement that the government reassess its fiscal plans if debt interest payments exceeded 6% of revenue.

This fiscal rule was short-lived. The Covid-19 pandemic led to a suspension of fiscal rules and the government has largely taken an approach of benign neglect to the public debt and deficit. However, it is expected that Chancellor Rishi Sunak will announce a new fiscal framework, including a fiscal rule, in the autumn Budget and Spending review of October 27. The Chancellor will likely recommit to a balanced budget within three years and it is reported that he will also attempt to require public debt to begin falling by that date.

Fiscal rules are a relative consensus in British politics, with both parties currently supporting budgetary policy to follow a rule. Proponents point to the need to constrain politically motivated deficits. The IFS writes in its green budget that “well-designed fiscal rules could make it easier for governments to borrow for good reasons while making it hard to borrow for bad reasons.” Further, some fiscal space should be preserved to cope with rising expenses on healthcare and adult social care, due to aging populations. Finally, inflation has been on the rise and some warn that high levels of public debt may lead to further inflation. The Resolution Foundation has turned to the experience of other countries for evidence that fiscal rules can help countries conduct a more countercyclical fiscal policy, i.e. increase deficits in recessions when they are most needed. However, the report notes that the fiscal rules in place in the UK have had limited success and require reform.

In contrast, the FT editorial board criticised the proclivity of each successive government to enact a different type of rule, belying the notion of a “rule,” and providing little credibility. “Constant change undermine the framework and suggest the rules are nothing more than a means of codifying the current stance of the chancellor rather than a reasoned approach to fiscal policy. Further, the economic shocks of the past decade showed that the best laid plans may last only briefly, until the next crisis. The editorial board also claimed the fiscal rules to be proposed in the fall budget are more austere than in the past. This coincides with Portes and Wren-Lewis’ (2014) warning that targeting debt levels risks excessively rapid adjustment and a rule governing deficits is preferable. NIESR goes further, calling on the government to scrap fiscal rules entirely. Instead, in facer of radical uncertainty, they have called on policy to be more discretionary and try to map out contingency plans for a variety of scenarios that might be laid out by the OBR (see the full five principles in Chadha, Küçük, and Pabst, 2021)

This month’s CfM survey asks to evaluate how effective fiscal rules have been and what type of institutional arrangement is preferable going forward. It consists of three questions. The first two questions ask how the fiscal rules that have been in place since 1997 have affected the UKs level of public debt and its economic performance.

Question 1: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the level of UK public debt?

Twenty-three panel members responded to this question. A majority of 57% of respondents believes that fiscal rules have reduced public debt compared with 39% who think they have had no impact. No participants thought that the rules caused public debt to increase and no participants thought that the impact was great. Panellists thinking that fiscal rules had no impact were more confident in their responses, but the majority believes that fiscal rules constrained public debt even when weighting responses based on self-reported confidence levels.

Respondents thinking that fiscal rules limited public debt in the UK focussed on the period before 2008 in their explanations. David Miles (Imperial College) writes that “On balance the rules may have reduced debt somewhat. This is largely because the debt GDP ratio in the years before the 2008 financial crisis were held at around the 40% limit the rules then specified.” Roger Farmer (University of Warwick) adds that “The fact that the debt was in the public discussion probably influenced spending. The National Institute makes a good case for flexibility.” Morten Ravn (University College London) pointed to the international experience with fiscal rules to justify his response: “looking broadly at the experiences with fiscal rules in many countries is that they tend to have limited debt creation regardless of whether they are debt rules or deficit rules. I think the reasons is that they make it harder for governments to engage in debt creation even if the rules are there for politicians to change.

Michael Wickens (Cardiff Business School and University of York) agrees that “Fiscal rules stabilised UK public debt until 2001 as the Labour government followed Conservative policies,” but claims that they have had little impact on the level of public debt overall. He writes: “two crises led to the abandonment of any pretense at following fiscal rules. In 2008 the financial crisis led to a huge explosion. Again in 2020 Covid led to a huge increase in debt.” Jagjit Chadha (National Institute of Economic and Social Research) is even more forceful in dismissing fiscal rules to date as acting as a bureaucratic device to limit expenditure in government departments and meet an adding up constraint in expectation. But shocks, news and political preferences have been the main driver of the level of public debt. The rules have been changed so regularly nobody outside of government thinks they place a constraint on policy over and above what H M Treasury would have chosen anyway.”

The second question asks the same question regarding macroeconomic performance.

Question 2: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the conduct of fiscal policy in the UK?

Twenty-three members of the panel answered this question. 39% of respondents think that fiscal rules have harmed UK macroeconomic performance. This compares with 21% who responded that fiscal rules improved UK macroeconomic performance. 35% of the panel believes that fiscal rules had little impact on macroeconomic policy in the UK.

The era of austerity policies in the aftermath of the global financial crisis were a main argument against fiscal rules. Simon Wren-Lewis (University of Oxford) frames the argument thus: “Following the [Global Financial Crisis], rules were used to impose fiscal contraction on the economy when fiscal stimulus was required, and that did great harm, probably leading to a permanent loss in UK output.” Agnus Armstrong (Rebuilding Macroeconomics, Institute for Global Prosperity, University College London) agrees that “I consider that the rules have relied on some dreadful macroeconomic ideas - such as the long run of the economy is somehow tied-down by some 'given' or fixed long run potential growth rate which has embedded fiscal conservatism when this was least appropriate. This reflects the limits of conventional thinking about what drives long term productivity and prosperity rather than the veracity of having rules per se.” Michael Wickens, posits a diametrically opposed view, whereby it was the laxity of application of fiscal rules that have led to an unsustainable fiscal situation with “the prospect of higher inflation, higher interest rates and higher debt service payments.”

Other respondents were more positive about the rule that fiscal rules have played. James Smith (Resolution Foundation) points to the overall improvement in fiscal institutions in the UK: “The combination of an independent OBR and clear fiscal rules has improved the conduct of fiscal policy in the UK markedly.” Ricardo Reis (London School of Economics) agrees and points to evidence from the IMF: “Fiscal rules usually strengthen the credibility of public finances, raising fiscal space and lowering the chances of a debt crisis. Given the shocks and state of public finances during 2010-12, I would expect these average effects to have been particularly relevant for the UK.”

The third question looks forward and asks which single target a fiscal rule should target. Some respondents would naturally wish to have multiple targets but were asked to list the single target that would do the most to improve macroeconomic policy in the UK.

Question 3: Which of the following variables should fiscal rules target to best improve the performance of the UK macroeconomic policy going forward.

Twenty-two members of the panel responded to this question. The most common answer (41% of the panel) was that a limit to public deficit was the most preferable fiscal target. An additional 18% called for a target for public debt and 5% for a debt-interest-to-public-revenue target. In their written responses, many panellists expressed support for some combination of these measures. 27% of the panel called for no explicit target.

Roger Farmer expresses the view of the plurality in stating that: “Keeping the primary deficit under control is the most important component of a sound fiscal policy.” While Simon Wren-Lewis voiced concern about the application of fiscal rules in practice, he argues that “rules should have current deficit targets for five years ahead on a rolling basis, with the actual value of the target determined by views about long run debt and a green new deal.” However, he and others have called for flexibility and allows for multiple escape clauses in his approach: “The key lesson of earlier fiscal rules is that you have to allow room for fiscal stimulus when interest rates hit their lower bound… it is better to have no fiscal rule at all than have a rule that doesn't allow for fiscal stimulus at the interest rate lower bound. Equally fiscal rules should never inhibit green investment, or low income compensation for high carbon taxes.” Many respondents support the current approach of exempting public investment from fiscal rules.

On the other side of the argument, Jagjit Chadha argues that “We need to remember that fiscal policy is an instrument of policy, like Bank Rate. And therefore should not be subject to a binding target. The target of policy should rather be related to some measurable aspect of the society's social welfare function.” Agnus Armstrong goes further in calls for a rethinking of the objectives of fiscal policy “To best improve the UK macroeconomic performance fiscal policy ought to aim at a socially inclusive economic objective -- such as ensuring that labour and all other resources can be fully mobilized, now and in the future, in the pursuit of wellbeing in thriving communities. To operationalise this objective requires some new measurement such as sustainability, agency and inclusion as well as traditional measure of economic activity. These metrics ought to be the aim of fiscal policy.”

References and Further Readings

Alesina, Alberto and Andrea Passalacqua (2016), “The political economy of government debt,” chapter 33 in Handbook of Macroeconomics vol. 2, John B. Taylor and Harald Uhlig eds, Amsterdam, Netherlands: Elsevier.

Chadha, Jagjit, S., Hande Küçük, and Adrian Pabst eds. (2021), “Designing a new fiscal framework: Understanding and Confronting Uncertainty.” National Institute of Economic and Social Research Occasional Paper LXI.

Portes, Jonathan and Simon Wren-Lewis (2014). "Issues in the design of fiscal policy rules," Discussion Papers 1412, Centre for Macroeconomics (CFM)

Yared, Pierre (2019), “Rising government debt: Causes and solutions for a decades-old trend,” Journal of Economic Perspectives 33(2) pp. 115-40.

How the experts responded

Question 1

Participant	Answer	Confidence level	Comment
Federica Romei University of Oxford	No opinion	Extremely confident
Paul De Grauwe London School of Economics	No impact	Confident
Francesca Monti Kings College London	Reduced	Not confident	Given the same shocks and political situation, but assuming that there were no fiscal rules in place, it is reasonable to presume that the debt would have been higher, as Yared (2019) and the evidence from countries who implemented fiscal rules suggest. I am not particularly confident of this answer, because this is a very difficult counterfactual to conceptualise and I think there probably is endogeneity between the choice to adhere to fiscal rules and other policy responses to the conjucture.
Ethan Ilzetzki London School of Economics	No impact	Confident	There is a strong (sometimes excessive) culture of attention to deficits and concern about the public debt in the UK. Chancellors particularly feel that talking the talk on deficits is the way to look "serious". They have also justifiably paid less attention to deficits in the first phase of the global financial crisis (but unfortunately began austerity far too soon) and the first year and a half of the Covid pandemic. Fiscal rules have merely ratified this norm, which would have maintained public debts and deficits pretty much at the same levels if policy was set via discretion.
Patrick Minford Cardiff Business School	Reduced	Confident	The main episode was the aftermath of the financial crisis of 2008 when the rules led to a programme of 'austerity'. This reduced debt but weakened growth, requiring aggressive monetary stimulus via Quantitative easing. This in turn drove interest rates to the zero bound.
David Cobham Heriot Watt University	No impact	Confident	It's possible that Gordon Brown made some decisions in response to his previously announced rule, but for subsequent chancellors it seems more likely that the rules were just public relations (Brown had a rule, Osborne had to have one too, but Osborne's fiscal decisions were made on other bases...).
James Smith Head of Macroeconomic Policy, Resolution Foundation	Reduced	Confident	Fiscal rules are important because they formalise a Government's medium-term strategy and priorities. Working well, they should incentivise countercyclical policy and welfare improving long-term decisions, as well as providing a clear sense of the fiscal reaction function. As such, they need not reduce debt to be successful (they could, for example, allow policy to be more active in a downturn, raising debt). Looking at the history of fiscal rules in the UK, however, they probably have come with policy settings being tighter than they would have in their absence.
Morten Ravn University College London	Reduced	Confident	Obviously this is an impossible question to answer since we do not know the counterfactual. But my impression looking broadly at the experiences with fiscal rules in many countries is that they tend to have limited debt creation regardless of whether they are debt rules or deficit rules. I think the reaons is that they make it harder for governments to engage in debt creation even if the rules are there for politicians to change. Whether this is good or bad is another question.
Nicholas Oulton London School of Economics	No impact	Confident
Ricardo Reis London School of Economics	Reduced	Not confident	Bak in time, part of the motivation for introducing the rules was to limit over-spending and over-borrowing, so prima facie they would be expected to lower the debt relative to the counterfactual. But, I am not confident on their effectiveness in reaching this goal.
Angus Armstrong Rebuilding Macroeconomics, IGP, UCL	No impact	Very confident	The rules constrain Chancellors to some extent because there is a political cost to being criticised on Budget Day. But some rules are bad rules and constraining the Chancellor in these circumstances is probably counter-productive. I would argue that this was the case in post 2010 in terms of justifying austerity resulting in even higher levels of public debt.
Roger Farmer University of Warwick	Reduced	Not confident	It's hard to know the counterfactual. The fact that the debt was in the public discussion probably influenced spending. The National Institute makes a good case for flexibility. Importantly, moving ahead, there needs to be an open public discussion about the costs of the government's ambitious climate agenda.
Jagjit Chadha National Institute of Economic and Social Research	No impact	Confident	The rules have acted as a bureaucratic device to limit expenditure in government departments and meet an adding up constraint in expectation. But shocks, news and political preferences have been the main driver of the level of public debt. The rules have been changed so regularly nobody outside of government thinks they place a constraint on policy over and above what H M Treasury would have chosen anyway.
David Miles Imperial College	Reduced	Not confident	On balance the rules may have reduced debt somewhat. This is largely because the debt GDP ratio in the years before the 2008 financial crisis were held at around the 40% limit the rules then specified. Had the UK gone into the financial crisis with a ratio much higher the stock of debt today might well be somewhat higher.
Wouter Den Haan London School of Economics	No impact	Not confident	My ideal answer would have been that UK debt has been reduced a little because of fiscal rules. The FT makes a sensible point by saying that the rules codify the current stance of the chancellor. Although changing a "rule" has clearly not been difficult, a change in a fiscal rule still goes with a bit more discussion/defence than changing a stance.
Natalie Chen University of Warwick	Reduced	Not confident
Gino A. Gancia Queen Mary University of London	Reduced	Confident
Kate Barker British Coal Staff Superannuation Scheme and University Superannuation Scheme	Reduced	Not confident
Costas Milas University of Liverpool	No impact	Confident
Simon Wren-Lewis University of Oxford	Reduced	Very confident	In the five odd years before the GFC, Labour's fiscal rules did force greater fiscal consolidation than would have happened otherwise. Since 2010, macro policy has been (erroneously) designed to reduce public debt, and the governments fiscal rules helped them do that. The exception is post 2015, when Osborne just set rules for short term party political reasons. It is quite wrong to say that because fiscal rules were broken they were useless. Labour's rules lasted for 10 years until the GFC. Osborne's main rule under the Coalition government held for 5 years. The lesson of this period is good rules survive, unless their is a large negative shock.
Linda Yueh London Business School	Reduced	Not confident
Lucio Sarno Cambridge University	Reduced	Confident
Michael Wickens Cardiff Business School & University of York	No impact	Confident	Since 1997 UK governments have never systematically followed fiscal rules. Fiscal rules stabilised UK public debt until 2001 as the Labour government followed Conservative policies. Afterwards, Gordon Brown began to increase public expenditures and the debt-GDP ratio steadily but slowly increased. After this two crises led to the abandonment of any pretense at following fiscal rules. In 2008 the financial crisis led to the a huge explosion. Again in 2020 Covid led to a huge increase in debt. This has financed by printing money and zero interest rates. The Damacles Sword hanging over the current situation is the prospect of higher inflation, higher interest rates and higher debt service payments. This will make fiscal situation unsustainable.

Question 2

Participant	Answer	Confidence level	Comment
Federica Romei University of Oxford	No opinion	Extremely confident
Paul De Grauwe London School of Economics	Harmed	Confident
Francesca Monti Kings College London	Harmed	Not confident	The harm due to lower growth caused by austerity is greater than its potential benefits in terms of lower inflation. Inflation has been low for a long period and is only now rearing its head and the UK's debt to GDP ratio is, in my view, still far from raising concerns around debt sustainability.
Ethan Ilzetzki London School of Economics	Harmed	Confident	I stated in my answer to the first question that fiscal rules had no impact on the conduct of fiscal policy. Therefore, a more accurate answer to this question would have been that they had no impact on macroeconomic policy more generally. I stated "harmed" in response to this question to highlight that the general culture of what is viewed as "serious" fiscal policy in the UK has been an excessive attention to public debt. This led to very misguided austerity policies starting in 2010 and risk an premature tightening of policy in the recovery from Covid 19.
Patrick Minford Cardiff Business School	Harmed	Confident	As noted in my first answer, growth has been weakened since the financial crisis, and interest rates driven by QE to the zero bound, where monetary policy has little effect and savings get a poor return. The economy's chronic weakness needed to be met by a fiscal/monetary mix with stronger fiscal expansion and less monetary stimulus.
David Cobham Heriot Watt University	Neither improved nor harmed	Confident	See comment on question 1.
James Smith Head of Macroeconomic Policy, Resolution Foundation	Greatly improved	Very confident	The combination of an independent OBR and clear fiscal rules has improved the conduct of fiscal policy in the UK markedly.
Morten Ravn University College London	Neither improved nor harmed	Very confident	I think fiscal rules have been good to the extent that they have helped communicate fiscal policy outlook and provided some - if imperfect - credibility of the fiscal framework. On the bad side, the rules have been altered too often to provide the level of credibility seen in, eg., Sweden. More importantly, using the rule set to motivate the fiscal austerity that followed the global financial crisis was, in my opinion, a mistake, as is the outlook for more austerity following Covid-19. I think this has harmed the UKs ability to invest in education, to address low productivity issues, and to tackle issues of inequality. Of course, the rules are not the real reason for this, but they have been used as an "excuse" removing partially the blame from politicians.
Nicholas Oulton London School of Economics	Harmed	Confident	The reduction in capital spending during and after the Great Recession was a big mistake. Though whether this was due to a fiscal rule or discretion is not clear.
Ricardo Reis London School of Economics	Improved	Confident	Fiscal rules usually strengthen the credibility of public finances, raising fiscal space and lowering the chances of a debt crisis (https://www.imf.org/en/Publications/FM/Issues/2021/10/13/fiscal-monitor-october-2021). Given the shocks and state of public finances during 2010-12, I would expect these average effects to have been particularly relevant for the UK
Angus Armstrong Rebuilding Macroeconomics, IGP, UCL	Harmed	Very confident	This seems to be more a question of the application of fiscal rules, rather than having rules per se. In this case I consider that the rules have relied on some dreadful macroeconomic ideas - such as the long run of the economy is somehow tied-down by some 'given' or fixed long run potential growth rate which has embedded fiscal conservatism when this was least appropriate. This reflects the limits of conventional thinking about what drives long term productivity and prosperity rather than the veracity of having rules per se.
Roger Farmer University of Warwick	Neither improved nor harmed	Not confident
Jagjit Chadha National Institute of Economic and Social Research	Harmed	Confident	Because the rules are tied to Parliamentary terms they set up a game between government departments as part of the political cycle and with the voting public, which demands certain expenditure constraints e.g. the triple lock or commitments to lower income tax. It is probable as a result that fiscal policy has not been as helpful to the development of our economic structures as it might otherwise have been. The economic imperative and the political cycle rarely coincide.
David Miles Imperial College	Improved	Not confident	Having some framework for policy - some form of forward-looking rule - does force governments to pay some attention to the likely future path for debt and deficits. With no framework the temptation to just focus on today and simply make optimistic noises about the future is too great.
Wouter Den Haan London School of Economics	Neither improved nor harmed	Not confident	Again, my ideal answer would have been slightly improved but effects are small so no effect is closer to my thinking.
Natalie Chen University of Warwick	Neither improved nor harmed	Not confident
Gino A. Gancia Queen Mary University of London	Neither improved nor harmed	Confident
Kate Barker British Coal Staff Superannuation Scheme and University Superannuation Scheme	Improved	Confident
Costas Milas University of Liverpool	Neither improved nor harmed	Confident
Simon Wren-Lewis University of Oxford	Greatly Harmed	Extremely confident	I'm excluding the period when Brown was Chancellor, when rules had no negative impact on the economy. Following the GFC, rules were used to impose fiscal contraction on the economy when fiscal stimulus was required, and that did great harm, probably leading to a permanent loss in UK output.
Linda Yueh London Business School	Improved	Confident
Lucio Sarno Cambridge University	Neither improved nor harmed	Confident
Michael Wickens Cardiff Business School & University of York	Harmed	Confident	See answer to question 1

Question 3

Participant	Answer	Confidence level	Comment
Paul Mortimer-Lee National Institute of Economic and Social Research	Public deficit	Extremely confident
Federica Romei University of Oxford	Debt interest to revenues	Confident
Paul De Grauwe London School of Economics	No explicit target	Confident
Ethan Ilzetzki London School of Economics	No explicit target	Very confident	Fiscal rules in the UK have to date only increased uncertainty and made fiscal policy less credible. Rules have been changed frequently and broken, giving the public little sense on the path of policy in the medium term. They have also ratified the contractionary bias in fiscal policy in recent decades. Discretionary policy would be preferable. This doesn't mean having an erratic policy. Each budget should contain a clear discussion of medium turn policy goals. Absent formal rules, the chancellor will also be freed to discuss more contingencies, giving greater policy clarity. The OBR would continue to play an important role of forecasting, monitoring, and evaluating policy.
Patrick Minford Cardiff Business School	No explicit target	Confident	The aim of fiscal policy should be to support growth in the current stagnationary environment, and subject to the long run solvency constraint. The targets sequentially selected have obscured this main role of fiscal policy and led to a contractionary bias in it. This was suspended by the Covid crisis, force majeure. But post-Covid there is a creeping return to a Treasury-pushed agenda of fiscal targets that will inhibit policies to support growth that do not endanger solvency. Instead the Treasury should publish a Solvency monitor, checking that the growth of debt is less than the real interest rate and hence that the present value of debt converges on zero in the long run.
David Cobham Heriot Watt University	No explicit target	Confident	Discretion rules (okay).
James Smith Head of Macroeconomic Policy, Resolution Foundation	Public deficit	Not confident at all	A framework in which the flow target is current budget deficit (not an option here, public deficit is closest option, hence 'not confident') and the stock target is net worth (also not an option) would work best in terms of incentivising policy welfare enhancing policy in the long term.
Morten Ravn University College London	No opinion	Confident	Many of these specific rules can be constructed to attain the same goal. In terms of effectiveness, the importance is that they are simple to communicate, that they can easily be evaluated, and that they are not changed too often.
Nicholas Oulton London School of Economics	Public deficit	Confident	I take this to mean the current deficit. There is now a consensus that more public investment is needed. But there is a big gap here: how should proposed investments be evaluated so that they yield a positive social return? The endless debates over the merits of HS2 show the problem. There is little transparency, methodologies are unclear, and forecasts of future benefits are dubious and seem designed to yield the desired answer.
Ricardo Reis London School of Economics	No opinion	Confident	A combination of the options you listed. As important is to take a probabilistic approach that weighs different scenarios for the evolution of a few key variables outside the government's control (like interest rates)
Angus Armstrong Rebuilding Macroeconomics, IGP, UCL	No explicit target	Very confident	To best improve the UK macroeconomic performance fiscal policy ought to aim at a socially inclusive economic objective -- such as ensuring that labour and all other resources can be fully mobilized, now and in the future, in the pursuit of wellbeing in thriving communities. To operationalise this objective requires some new measurement such as sustainability, agency and inclusion as well as traditional measure of economic activity. These metrics ought to be the aim of fiscal policy.
Roger Farmer University of Warwick	Public deficit	Confident	Keeping the primary deficit under control is the most important component of a sound fiscal policy. It also matters whether deficits are used to fund public capital, which has the potential to pay for itself, as opposed to government consumption, which does not. I am not concerned about the level of debt, as long as the debt to gap ration remains within reasonable bounds.
Jagjit Chadha National Institute of Economic and Social Research	No explicit target	Very confident	We need to remember that fiscal policy is an instrument of policy, like Bank Rate. And therefore should not be subject to a binding target. The target of policy should rather be related to some measurable aspect of the society's social welfare function.
Wouter Den Haan London School of Economics	Public debt	Confident	In answering this question, I assume that the fiscal rule in question would be one that would remain in place for a long period. And then I'd rather would see a debt-level-target rule that is in place only when the economy is growing.
Natalie Chen University of Warwick	Public debt	Not confident
Gino A. Gancia Queen Mary University of London	Public debt	Not confident
Costas Milas University of Liverpool	Public deficit	Confident	It makes sense to keep the public deficit-to-GDP ratio "manageable". I wouldn't recommend a particular threshold because there might be circumstances that this threshold might have to be relaxed.
John VanReenen London School of Economics	Public deficit	Confident	Balance current over cycle with knock out clause at zLB
Simon Wren-Lewis University of Oxford	Public deficit	Extremely confident	The key lesson of earlier fiscal rules is that you have to allow room for fiscal stimulus when interest rates hit their lower bound. Any fiscal rule that does not do this or something very similar can do great harm, as 2010-15 showed, and it is better to have no fiscal rule at all than have a rule that doesn't allow for fiscal stimulus at the interest rate lower bound. Equally fiscal rules should never inhibit green investment, or low income compensation for high carbon taxes. That aside, rules should have current deficit targets for five years ahead on a rolling basis, with the actual value of the target determined by views about long run debt and a green new deal. Public investment should not be inhibited by any aggregate rules, but instead the social return on individual projects. Rules should never set debt targets, because they will always fail as they are not robust to shocks. The likely path of interests should inform the path of debt that informs the deficit target, but not be a target itself.
Linda Yueh London Business School	Public deficit	Confident
Michael Wickens Cardiff Business School & University of York	Public debt	Extremely confident	The only fiscal rule that is needed is that debt should be sustainable, meaning the public are willing to hold it. This entails tax financing permanent government expenditures, including debt service payments, and debt financing temporary expenditures, including investment and temporary shocks such as Covid. The sustainability of debt depends on fiscal deficits, the cost of borrowing, inflation and the rate of growth. To date, no government has shown any understanding of this.
Lucio Sarno Cambridge University	Public deficit	Very confident

How the experts responded

Question 1

Question 2

Question 3

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