Binding the Hands of Government - a credible fiscal rule for the UK

New fiscal rules needed to control government spending

In a new paper released by the Institute of Economic Affairs, Kwasi Kwarteng and Jonathan Dupont argue that Britain should introduce a debt brake to ensure the Chancellor balances his budget.

Looking at evidence from Switzerland and Germany, the research shows that debt brakes are effective at limiting government spending, while the fiscal rules Britain has followed in the past have not prevented governments from running up huge debts.

The authors propose that if the Chancellor fails to observe the debt brake, there should be a public exchange of letters between him and the OBR explaining why and what action is being taken to rectify the situation. The Chancellor could also face a personal financial penalty of up to 20% of his salary.

The report suggests that:

  • No fiscal rule can predict the future or gua