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99.5% of government Covid debt has been matched by so called Bank of England money printing’

Fiscal rules fail on their own terms and should be replaced by fiscal referees at the Office for Budget Responsibility in the 2021 Spending Review, according to research from the New Economics Foundation (NEF)

Between April 2020 and July 2021, the Bank of England’s money printing’ programme – creating new money to buy up government debt — matched 99.5% of total new debt issued by government to pay for Covid support schemes like furlough, new analysis from NEF shows. While total borrowing between March 2020 and July 2021 was £413bn, the Bank of England’s total purchase of government debt was £412bn, or 99.5%.

For the most recent financial year, the percentage is even higher, with new net government debt coming to £320.5bn in 2020/​21 and net new purchases of government debt at the Bank of England coming to £328bn over the same period. This move has helped to bring government borrowing costs to record lows and shows that government is sometimes effectively able to finance itself in times of crisis, with the Bank of England passing any profit it makes on debt interest back to the Treasury. This is one example of how debt-to-GDP ratios, or other simplistic indicators linked to the government’s balance sheet, fail to capture the complex, multifaceted nature of fiscal space – the amount a government can safely borrow.

New research from NEF argues that the current fiscal rules – targets for government debt and borrowing – do not represent a responsible policy framework capable of meeting the challenges of the 21st century. The general approach to fiscal rules is no longer fit for purpose and in need of an overhaul at the 2021 Spending Review.

The report identifies three fundamental design flaws in the UK past and present fiscal rules:

  • Fiscal rules lack bite and consistently fail to hold chancellors and the Treasury to account on their own terms. In just over a decade, the UK will have experienced six different sets of rules, with eleven rules coming in the past seven years. Chancellors are effectively setting and then marking their own homework. A third-party institution is needed to hold government to account.
  • Fiscal rules focus too narrowly on the government’s own balance sheet as a proportion of GDP, which is insufficient for understanding the true limits to government borrowing. A wider view is needed, with new principles and an assessment of macroeconomic fundamentals – like spare resources in the economy – and institutional factors – like the capacity of the central bank to buy up government debt without causing economic harm.
  • Fiscal rules are excessively one-sided, attempting to guard only against over borrowing. But with ten years of harmful austerity worsening the UK’s public health response to Covid, and several decades of wasted time to avert, mitigate and adapt to the climate crisis shows that under borrowing when it is most needed can be at least as harmful. The new fiscal framework needs to have greater symmetry, guarding against both excessive degrees of either over borrowing, or under borrowing, in the future.

To address these design flaws, NEF proposes an institutional overhaul of the UK’s fiscal rules. Fiscal rules should be replaced by fiscal referees’ – a new fiscal policy committee (FPC) at the Office for Budget Responsibility. The new proposals include the following features:

  • The fiscal referees would act as an independent committee, for example housed at the Office for Budget Responsibility or another third party. The FPC would estimate the optimal range for borrowing over a medium-term forecast, twice a year before fiscal events like the budgets.
  • The government would remain solely responsible for setting overall levels of tax and borrowing, and the levels of borrowing and debt implied by these decisions.
  • Members of the new FPC would be appointed by a combination of government and parliament but would ultimately report to a body of parliament that would be responsible for holding the chancellor and government to account.
  • If borrowing fell either below or above this range, the chancellor would need to write a letter, and give verbal evidence, explaining themselves to a body of parliament, such as the Treasury Select Committee.

Frank van Lerven, Senior Economist at NEF, said:

As the UK emerges from the largest peacetime economic shock since modern records began, the government is looking to publish its new fiscal framework in the upcoming 2021 spending review. Given recent failures of the current framework, and the scale and nature of the challenges facing the UK economy, fresh thinking is needed now more than ever.

Without reform, the government is in danger of repeating the costly mistakes of the past. The chancellor is set on balancing the books’ and bringing down debt levels. But this will undermine the post-pandemic recovery that is barely underway, while also exacerbating structural weaknesses in the UK economy, and worsening the climate emergency.”


Becky Malone, , 07925950654

Notes to editors

The New Economics Foundation is a charitable think tank. We are wholly independent of political parties and committed to being transparent about how we are funded.

The report Calling time: Replacing the fiscal rules with fiscal referees is available here.

By total borrowing’ we are referring to the amount of cash needed for the government to meet all (new and old) of its financial obligations – the central government net cash requirement. This figure will usually be higher than annual central government borrowing because it includes new public net sector borrowing over any given time period in addition to any refinancing of existing debt obligations (i.e. taking out new debt t

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