Resolution Foundation

Built to last

Towards a sustainable macroeconomic policy framework for the UK
The State

This paper, part of the Economy 2030 Inquiry, tackles the key question of how to futureproof the UK’s macroeconomic policy framework. Looking beyond the immediate policy challenge of high inflation, it focuses on whether the current framework – largely set during the calmer economic times of the 1990s – is still fit for purpose.

Since the financial crisis, public sector net debt has nearly trebled as a proportion of GDP – an unprecedented peace-time rise. A major driver has been the use of fiscal policy during a series of large economic shocks. Fiscal policy has a key role to play in downturns, but the scale of the interventions has important implications for the sustainability of the public finances. We argue that putting the public finances on a sustainable path requires a reset of both monetary policy and fiscal policy. We must reduce our chances of interest rates hitting their lower bound once again, thereby relieving the pressure on fiscal policy in downturns. And we must have the right fiscal policy tools in place to deploy targeted support that gets us more bang for our buck.

These reforms would reduce the extent to which public sector debt ‘ratchets up’ each time the UK enters a downturn, but debt would still rise. A realistic budget surplus of 1 per cent, rather than 3 per cent in the absence of any policy reforms, would be sufficient to put debt on a gently downward path in the long run.

For all research queries about this report, please contact Simon Pittaway. For press queries, please contact the Resolution Foundation press office.

Simon Pittaway
Senior Economist,
Resolution Foundation
Email Simon