Pledge
“Our fiscal rules are non-negotiable … This means that the current budget must move into balance, so that day-to-day costs are met by revenues and debt must be falling as a share of the economy by the fifth year of the forecast”
Our verdict
The government is currently on track to meet its fiscal rules, though the Office for Budget Responsibility has warned economic uncertainties, such as the impact of tariffs, could challenge this in future.
‘Fiscal rules’ are rules, or targets, imposed by governments on themselves in order to constrain decisions on taxes and public spending.
Labour’s fiscal rules were announced by then-shadow chancellor Rachel Reeves ahead of the 2024 general election, and included in the party’s manifesto. They were restated by the government in the Autumn Budget in October 2024, and included in the Charter for Budget Responsibility, which was approved by Parliament in January 2025.
The current fiscal rules have two main components. The first commits the government to ensuring that day-to-day public sector spending is met by revenues from taxes and other sources by 2029/30—meaning the government would only borrow to invest.
The second is that debt must be falling as a share of the economy by 2029/30 when compared to the previous financial year.
It’s worth noting that after 2026/27 the timescale for these targets will change, and they will instead apply to the third year of a rolling forecast.
A separate third rule also requires that certain types of welfare spending must be below a specified level—called the welfare cap—which is set at £194.5bn by 2029/30.
The first two of these rules are those mentioned specifically in Labour’s manifesto, and therefore it is progress in keeping those rules “non-negotiable” which we’re assessing here. However it’s worth noting that the way in which the fiscal rules measure debt has changed under Labour.
Between 1997, when then-chancellor Gordon Brown formalised the need for a government to set its own fiscal rules, and 2022, the government measured public debt as public sector net debt (PSND). A related measure was used between 2022 and 2024, which excluded the Bank of England’s balance sheet, (PSND ex BoE).
But in the 2024 Autumn Budget, Ms Reeves announced a new measure of public debt for the government’s fiscal rules, public sector net financial liabilities (PSNFL). This metric includes the Bank of England, but also includes a broader range of financial liabilities (such as public sector pensions) and financial assets (such as student loans) than the PSND measure.
Some commentators suggested this change was made to provide additional headroom for capital expenditure, although others have backed the new measure as better capturing the value of the public sector’s long-term financial assets.
It’s worth noting that before the election Ms Reeves was reported to have promised to keep the same measure of debt that had previously been used by the Conservatives, which was not what happened. (We’ve asked Labour about this but did not get a response.) However, here we’ve rated progress based on the pledge in Labour’s manifesto itself, which did not detail which measure of debt would be used.
Honesty in public debate matters
You can help us take action – and get our regular free email
We’re currently rating this pledge as “appears on track”. The latest Office for Budget Responsibility (OBR) forecast suggests the government is on track to meet its fiscal rules as set out in the Labour manifesto, as does analysis from the Institute for Fiscal Studies and the Institute for Government.
Following the Autumn Budget in October 2024, the OBR forecast both the day-to-day spending fiscal rule and the falling net financial debt rule would be met, but “by relatively small margins”.
This forecast estimated a current budget surplus of £9.9 billion in 2029/30, and that debt would be falling as a percentage of GDP in 2029/30 by a margin of £15.7 billion.
However, alongside Ms Reeves’ Spring Statement on 26 March 2025, the OBR released an updated forecast, with new estimates relating to these fiscal rules.
This said that had the government not taken any action, the day-to-day spending fiscal rule would likely have been missed by £4.1 billion by 2029/30. However after the government announced a series of spending reductions ahead of the Spring Statement, the OBR said there was now a 54% likelihood of a restored budget surplus of £9.9 billion by 2029/30, the same amount as forecast in October.
These spending reductions include changes to health and disability benefits, and plans to reduce running costs of government departments by 15% by the end of the parliament.
If the government had not taken these measures, the OBR forecast that it would likely have still met its second fiscal rule for debt to be falling as a percentage of GDP in 2029/30 by a margin of £4.9 billion. Taking into account the changes, the OBR forecast that this target will be met by a margin of £15.1 billion in 2029/30, at a likelihood of 51%, with debt forecast to fall from 83.2% of GDP in 2028/29 to 82.7% in the following year.
However, the OBR has warned that the chancellor’s £9.9 billion day-to-day spending headroom by 2029/30 leaves a “very small margin” by which to continue meeting this fiscal rule given global and economic uncertainties.
Key among these is tariffs from the US, with the OBR previously forecasting that a 20 percentage point rise in tariffs between the USA and the rest of the world could reduce UK GDP by 1% and shrink the projected surplus in 2029/30 to “almost zero”. (This forecast predates more recent announcements about tariffs and a UK-US trade deal, however.)
Other factors which the OBR says could also present a challenge are uncertainties around productivity growth and interest rates.
As we develop this Government Tracker we’re keen to hear your feedback. We’ll be keeping the Tracker up to date and adding more pledges in the coming months.
Progress displayed publicly—so every single person in this country can judge our performance on actions, not words.
Sir Keir Starmer, Prime Minister – 24 September 2024