Across advanced economies, long-term government borrowing costs have drifted higher. This is not simply a function of interest rate cycles or inflation expectations. A growing part of the rise reflects a broader-term premium that investors now demand to compensate for increased uncertainty about fiscal governance itself. When markets perceive that political systems are unable or unwilling to maintain credible long-term fiscal plans, the price of that uncertainty is incorporated directly into sovereign yields.
The UK is far from unique in facing this problem, but its institutional architecture leaves it particularly exposed. Fiscal policy is deeply political and highly centralised. It is formulated with remarkable discretion by a small number of ministers operating under intense short-term pressures. Decisions that alter the structure of the tax system and affect long-term sustainability are often announced with limited consultation or upstream scrutiny. This flexibility has advantages, but it also creates volatility and undermines confidence. The experience of the 2022 mini budget made this painfully clear.
The need for transparent scrutiny
In this environment, the case for a UK fiscal policy committee is fundamentally about strengthening credibility. The purpose is not to constrain democratic choice, nor to remove fiscal policy from politics, but to introduce a level of disciplined, transparent scrutiny that gives markets and the public confidence that policy is being developed within a consistent framework. The evidence from monetary policy reforms shows that institutional credibility lowers the cost of capital by anchoring expectations. A similar effect is achievable in fiscal policy.
The analogy with the Bank of England’s Monetary Policy Committee is instructive. Nobody doubts that interest rate decisions remain political in their consequences, yet the framework within which the MPC operates is widely accepted and cross party. Parliament sets the inflation target but, once the target is established, the operational independence of the MPC gives political actors a form of credible cover. Chancellors are no longer personally pressured to cut rates in difficult economic moments. A convention has emerged in which political actors respect the credibility of the MPC process, even when they disagree with the outcomes.
An FPC would operate in a parallel space. Parliament would set the fiscal objectives, which could take various forms such as ensuring UK long-term yields remain broadly in line with peer nations or maintaining debt sustainability benchmarks that reflect international norms. The FPC would not set fiscal stance, nor choose tax or spending priorities. It would instead scrutinise the structure, coherence and long-term implications of government proposals before they are locked in. Its assessments would be published, giving parliament and the public a clear explanation of where proposals align with or depart from the established framework.
Strengthening credibility
This is particularly important because the forces driving up long-term borrowing costs are structural rather than cyclical. Investors are increasingly sceptical of governments that announce new targets and then revise them frequently. Across G7 economies there is growing concern about the durability of fiscal plans, the political willingness to maintain discipline during electoral cycles and the ability of governments to resist pressure for ad hoc interventions.
This scepticism feeds directly into the term premium. Even countries with strong reputations, such as the US and France, have seen episodes where political impasse or unexpected fiscal announcements have increased yields independently of macroeconomic conditions.
An institution that provides upstream scrutiny can help reverse this trend. Markets respond positively when governments demonstrate that fiscal choices are subject to independent evaluation, and that any departures from long-term objectives are transparent and justified.
This is already visible in countries where budget offices or fiscal councils play a recognised role in pre legislative assessment. The specifics differ, and one should avoid overstating international similarity, but the common factor is that credibility is strengthened when governments cannot announce major fiscal shifts without independent analysis. Investors place a lower risk premium on such systems.
Being proactive, not reactive
A UK FPC would complement, rather than duplicate, the Office for Budget Responsibility. The OBR focuses on forecasts and the sustainability of the aggregate fiscal stance. The FPC would look inside the structure of the measures themselves, examining whether policy design is coherent, consistent, legally clear and aligned with the broader objectives set by parliament. Crucially, this would occur early enough in the policy-making cycle to influence decisions rather than merely comment on them.
This is where the potential for impact is greatest. Much of the structural weakness of the UK fiscal system stems from rapid, reactive policy-making. Reliefs are added, withdrawn or expanded with little regard for long-term coherence. Similar income streams are taxed in sharply different ways. Anti-avoidance rules accumulate in layers, adding complexity without addressing underlying inconsistencies. A committee with the independence to point out these issues before they crystallise could significantly reduce unnecessary complexity.
The benefits extend beyond technical design. A credible FPC gives political actors a form of external accountability that lowers the temptation to engage in short-term fiscal manoeuvres. When governments know that their proposals will be independently scrutinised, the bar for defensible policy-making rises. Over time, that can create a culture of fiscal discipline that operates through convention rather than compulsion. It becomes politically costly to deviate from the established framework without clear justification. Markets, in turn, reward that predictability with lower borrowing costs.
This matters because the sustainability of public finances depends not just on levels of debt and deficits, but on confidence in the system that produces them. If the UK can demonstrate that it is willing to adopt institutional safeguards that match those used for monetary policy, it can reduce the sovereign risk premium that has built up in recent years. The long end of the curve reflects not simply the cost of money, but the cost of political uncertainty. Institutions that temper that uncertainty can deliver real economic gains.
An FPC would not remove politics from fiscal policy and nor should it. Parliament would remain sovereign, ministers would remain accountable and voters would continue to determine the direction of travel. What would change is the quality of the process. The UK has already shown, through the MPC and the OBR, that institutional credibility can be built through independence, transparency and consistent practice. An FPC is the logical next step in that evolution. It would support better fiscal decisions, reduce the market cost of uncertainty and help anchor long-term rates in a world where investors increasingly price credibility as a scarce asset.
Alexis Brassey is an Affiliated Lecturer at the Cambridge Law Faculty and Visiting Fellow of the Centre for Tax Law.
This article is a summary of a longer paper, ‘The Case for a UK Fiscal Policy Committee: Restoring Trust, Discipline and Legitimacy’, which will feature in the forthcoming Translating Tax Policy into Law, edited by Dominic de Cogan, Alexis Brassey and May Hen. Visit www.hartpublishing.co.uk for updates.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.