The Role of Fiscal Indicators in Setting Fiscal Policy in the UK

Abstract

Woods examines the role of fiscal indicators in the UK fiscal policy framework. This includes the golden rule and the sustainable investment rule, requiring public sector net debt as a proportion of GDP to be held at a stable and prudent level over the economic cycle. Woods considers the wide range of fiscal indicators used to underpin fiscal decisions. Backward-looking indicators provide a measure of how successful the government has been in meeting its objectives; projections of the key fiscal indicators can guide fiscal strategy over the medium and long term. The indicators help the government in setting its fiscal policy and provide the public with the evidence required to evaluate government policies. Woods gives a detailed explanation of the approach used to cyclically adjust key fiscal balances and the indicators used in analyzing the longer-term fiscal position, including issues of long-term fiscal sustainability and inter-generational fairness. Finally, the paper considers how the various indicators are used in formulating the government’s fiscal strategy.