What are the fiscal rules?
The fiscal rules are self-imposed targets that limit how much the UK government can borrow. The current rules were set in October 2024. They say day-to-day spending must be paid for by tax revenue by 2029/30. A measure of public debt must also be falling as a share of the economy.
There are two main rules. The stability rule requires the current budget to be in balance or surplus by 2029/30. That means everyday spending, such as salaries and benefits, must be covered by revenue. Borrowing is still allowed for investment, such as roads, hospitals and energy projects. Including investment in the targets means a government can borrow for long-term projects without breaking its rules. Critics say the line between day-to-day and investment spending can be blurred.
The investment rule requires public sector net financial liabilities to fall as a share of GDP by 2029/30. This measure counts some assets the state owns, not just debt. A separate welfare cap limits certain benefit spending. The independent Office for Budget Responsibility judges whether the government is on track at each Budget.
The margin by which the government meets its rules is called headroom. Small headroom can force tax rises or spending cuts when forecasts worsen. Every UK government since 1997 has had fiscal rules, and most have changed or missed them. Supporters say rules build trust with lenders and keep borrowing costs down. Critics say they encourage short-term tinkering and can block worthwhile investment.
Where you've seen it
Mostly an academic and activist idea since the 1990s. Supporters point to Japan's large debts with low interest rates, though no government officially follows MMT.
In the UK today
Mostly discussed in think tanks, online and on the left. It comes up in debates on whether the government should worry so much about debt and the fiscal rules.
The left often argues the rules are too tight and block investment, and that borrowing to invest pays for itself over time.
The right often argues the rules are too loose or easily gamed, and that the real answer is lower spending rather than higher taxes.
Britain is split. Now you decide.
In Population Decides you must meet your own fiscal rules while setting the Budget, or face the markets and the OBR.
Play Population Decides freeCommon questions
Who checks the fiscal rules?
The Office for Budget Responsibility assesses whether the government is on course to meet them at each Budget.
What is fiscal headroom?
It is the amount by which the government is forecast to beat its fiscal rules. It acts as a safety buffer.
Can the government change the fiscal rules?
Yes. They are set by the government itself, though changing them can unsettle financial markets.
What does MMT stand for?
Modern monetary theory. MMT stands for modern monetary theory.
According to MMT, what is the real limit on government spending?
Inflation. MMT says that for a country with its own currency, the real limit on spending is inflation, not debt.