Published by Global Banking & Finance Review®
Posted on February 19, 2026
2 min readLast updated: April 3, 2026
Add as preferred source on GoogleThe IFS urges the UK to drop strict fiscal targets and adopt an OBR-run traffic-light system covering borrowing, debt and interest. It argues headroom fixation skews policy, while Reeves’ 2030 balance hinges on tax rises before a 2029 election.
LONDON, Feb 19 (Reuters) - British governments should stop gaming their tax and spending plans to meet fiscal targets and adopt a more flexible system for assessing the public finances instead, a think tank said on Thursday.
The Institute for Fiscal Studies said a fixation on the amount of headroom governments have for hitting their targets was contributing to dysfunctional policymaking.
Finance minister Rachel Reeves is on track to balance day-to-day public spending with tax income by 2030 only if she goes through with planned tax hikes in the next few years that analysts see as unlikely with an election due in 2029.
The previous Conservative government set out deep spending cuts for future years that were described by the former head of Britain's budget watchdog as "worse than fiction".
The IFS said in a report that a broader set of indicators would give a better picture of the overall fiscal position and reduce the incentive for governments to contort policy.
"Breaking the obsession with 'fiscal headroom' might also provide the basis for a more meaningful debate about the fiscal opportunities and challenges facing the country," Ben Zaranko, associate director at the IFS and author of the report, said.
Under the proposal, finance ministers would set out a fiscal strategy - giving a broad direction of travel, rather than precise numerical targets - which would be regularly updated.
A range of indicators - including borrowing, debt and debt interest - would be assessed by the Office for Budget Responsibility using a red–amber–green traffic light system.
The IFS acknowledged the change might make it easier for politicians to borrow too much but said a less dysfunctional approach to fiscal policymaking justified the trade-off.
(Writing by William Schomberg)
The IFS proposes replacing the UK’s rigid fiscal targets with an OBR-run traffic-light system. It argues the current fixation on fiscal headroom distorts policymaking.
The OBR would rate indicators such as borrowing, debt and debt interest red, amber or green against the government’s fiscal strategy, offering a broader, regularly updated view.
Reeves is on track to balance day-to-day spending by 2030 only if planned tax rises go ahead. Analysts doubt large hikes before the expected 2029 election, underscoring tensions under current rules.
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