Executive summary 4

1. Introduction 9

2. Trade-offs in the design of a fiscal framework 11

2.1 Why have fiscal rules? 11

2.2 Trade-offs and trilemmas 14

2.3 There’s no magic number and no magic metric 16

3. Problems with the UK’s current approach 18

3.1 The UK fiscal framework at present 19

3.2 The ‘headroom’ problem 21

3.3 Other problems with the framework 25

3.4 A bad equilibrium 29

4. A proposal for reform 30

4.1 Pillar one: a Statement of Fiscal Strategy at the start of each parliament 30

4.2 Pillar two: monitoring via a set of fiscal traffic lights 33

4.3 Why this is not a proposal for immediate reform 41

5. Counterarguments and potential challenges 45

5.1 Alternative approaches 45

5.2 Practical objections and concerns 55

5.3 Summing up: trade-offs worth making? 61

6. Conclusion 62

Appendix 63

References 65