CALLING TIME - REPLACING THE FISCAL RULES

27 3 Calling time: replacing the fiscal rules with fiscal referees EXECUTIVE SUMMARY As the UK emerges from the largest peacetime economic shock since modern records began, the Treasury is preparing to publish the latest iteration of the government’s new fiscal framework – the arrangements, targets and institutions governing the implementation of public budgets. [...] In effect, this replaces the cost to the Treasury of paying interest rates on gilts with the much lower cost to the Bank of England of paying interest on reserves to commercial banks (because the difference between the two rates is paid back to the Treasury). [...] 25 Calling time: replacing the fiscal rules with fiscal referees Unlike the MPC, however, the FPC would have no delegated policymaking power – with the UK’s fiscal position remaining the responsibility of the government and the chancellor as it is today. [...] This would be based on an analysis of macroeconomic variables and dynamics, such as different elements of the public sector balance sheet, the availability of real resources in the wider economy, the balance sheet position of the private sector, the balance sheet and activities of the Bank of England, and the maturity and ownership profiles of government debt – similar to exercises currently under. [...] The UK government shall not borrow in excess of the availability of resources and idle input of the economy, such that nominal aggregate demand outstrips the productive capacity of the economy.