"The chancellor hopes that by accumulating more headroom, she can dampen incessant speculation about whether the rules will be broken in the Office for Budget Responsibility (OBR)'s next forecast and how the government will respond. We would like more headroom. We want to try to insulate ourselves better against the volatility in the bond markets, said a Treasury source, adding that tax increases and spending cuts were on the table."
"The chancellor is right to try and increase the margin for error against the fiscal rules, said Ruth Curtice, the director of the Resolution Foundation thinktank. Doing so could have big rewards, not least in reducing the chances of having to come back for a third round of tax rises next year. She added: With typical variation in forecasts of 17bn, a margin for error of under 10bn in a time of heightened global uncertainty was always slim."
Rachel Reeves has sought to increase the cushion against her fiscal rules ahead of the November budget to protect the UK from volatile government bond markets. She achieved the first rule with about £10bn spare at last autumn's budget and again at the March statement, leaving a historically narrow margin. Officials consider tax rises and spending cuts to create more headroom. Forecast uncertainty and market pressures have pushed borrowing costs up, while an expected OBR productivity downgrade has removed roughly £10bn–20bn a year from the fiscal position. Reversing winter fuel allowance cuts adds about £6bn a year, compounding the challenge amid difficult political trade-offs.
Read at www.theguardian.com
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