The former head of Britain’s independent fiscal watchdog has delivered a stinging critique of the Chancellor’s approach to public borrowing, warning that the government’s current fiscal rules are fundamentally flawed and leave the UK dangerously exposed to future economic shocks.
Richard Hughes, who until December served as chair of the Office for Budget Responsibility (OBR), said Chancellor Rachel Reeves’ borrowing framework “makes no sense” in the context of the scale of debt the government continues to accumulate. He cautioned that unless ministers build a far larger buffer into the public finances, Britain risks entering the next economic crisis with little room to respond.
Speaking to peers on the House of Lords Economic Affairs Committee, Hughes argued that despite changes announced in the recent Budget, the UK remains locked into a pattern of high borrowing that has persisted long after the twin shocks of the Covid-19 pandemic and the energy price crisis should have subsided.
Persistent Deficits and Rising Debt
At the core of Hughes’ criticism is the UK’s ongoing budget deficit the gap between what the government raises in taxes and what it spends on public services and welfare. According to the OBR’s latest projections, Britain is still on course to run an overall deficit approaching 5 per cent of gross domestic product (GDP) in the current financial year.
“That is not a temporary deviation,” Hughes warned. “It is a structural position that has been allowed to persist.”
He contrasted the UK’s position with that of other major economies, noting that while many countries took on heavy debt during the pandemic, most have since taken clearer steps to stabilise their finances. Britain, by contrast, has continued to “pile up debt” well into the recovery period.
The former watchdog chief warned that this trajectory leaves the UK “increasingly vulnerable” to external shocks whether from financial market turbulence, geopolitical instability, or future energy price spikes.
Criticism of ‘Rolling’ Fiscal Rules
Hughes was particularly scathing about the Chancellor’s use of so-called rolling fiscal rules, which require debt to be falling only at a point five years into the future. Because the target year moves forward every year, governments can repeatedly delay tough decisions while technically remaining compliant with the rules.
“If you want debt to be lower, then target debt to be lower,” Hughes told peers. “Don’t target it to be falling in five years’ time.”
He explained that rolling rules can have a limited purpose when public finances are already stable and policymakers are trying to maintain balance. But in a situation where the country is running a large deficit, they risk becoming a permanent excuse for inaction.
“When you are in disequilibrium,” he said, “what rolling fiscal rules allow you to do is never get there, because you’ve always got a two- or three-year excuse as to why you’re not there at the moment.”
Hughes argued that Britain’s current framework has effectively institutionalised high borrowing, allowing the country to remain stuck with a deficit close to 5 per cent of GDP for years a position he described as highly unusual among advanced economies.
Debt Set to Reach Historic Levels
The warnings come against a bleak long-term backdrop for the public finances. The OBR forecasts that total public debt as a share of GDP will continue to rise throughout the remainder of the current Parliament, peaking at around 97 per cent in 2029 higher than during the height of the pandemic.
Even more troubling, the watchdog has warned that without significant policy changes, Britain’s debt burden could spiral dramatically over the coming decades. On current trends, debt is projected to approach 270 per cent of GDP by the mid-2070s, driven largely by an ageing population, rising healthcare costs, and mounting pressure on pensions and social care.
Hughes expressed frustration that these long-term risks have received scant political attention.
“There has been no serious parliamentary debate about this looming crisis,” he said, lamenting what he described as an increasingly dismissive response from the Treasury.
Concerns Over ‘Fiscal Illusions’
The former OBR chief also raised concerns about what the watchdog has previously termed “fiscal illusions” accounting mechanisms or timing decisions that make the public finances appear healthier than they truly are.
The OBR has cautioned against tactics such as delaying spending commitments beyond the forecast period, relying on optimistic assumptions about future growth, or using one-off policy measures to meet headline targets.
Hughes warned that the Chancellor’s revised rules introduced after Labour took power in 2024 are “among the loosest” since fiscal frameworks were first adopted to curb debt-fuelled spending.
While Reeves has pledged to match day-to-day public spending with tax revenues, Hughes said the rules have “done little” to rebuild fiscal resilience or restore confidence that debt will be brought under control.
Headroom ‘Far Too Small’
In her latest Budget, Reeves sought to reassure markets by doubling the amount of so-called headroom the margin by which the government meets its fiscal rules to £22 billion. The move was designed to provide some flexibility in the event of adverse economic developments.
But Hughes dismissed the buffer as inadequate.
He argued that a credible safety margin should be at least £50 billion, giving the Treasury meaningful room to absorb shocks without immediately breaching its own rules or being forced into emergency tax rises or spending cuts.
“With the level of uncertainty we face globally and domestically the current headroom is very small,” he said. “It leaves very little margin for error.”
Fallout From OBR Departure
Hughes’ remarks carry additional weight given his abrupt departure from the OBR last month. He was forced to step down after the watchdog accidentally leaked sensitive details of the Budget an incident that caused embarrassment for the Treasury and raised questions about governance and oversight.
Rachel Reeves has yet to appoint a permanent replacement, leaving the OBR in a transitional phase ahead of its next major report in March.
Business groups have also criticised the handling of the Budget process, arguing that leaks and uncertainty undermined confidence at a time when investment is already fragile.
Treasury Pushback
The Treasury has rejected Hughes’ assessment, insisting that the government’s fiscal strategy is both credible and effective.
A spokesperson said the Chancellor’s “non-negotiable fiscal rules” have helped keep borrowing costs down, supported market confidence, and prioritised investment aimed at boosting long-term economic growth.
“We’re cutting borrowing more than any other G7 country,” the spokesperson said, adding that borrowing is forecast to fall to its lowest level in six years as a share of GDP.
A Growing Debate Over Britain’s Economic Future
Hughes’ intervention has reignited a wider debate over how Britain should manage its public finances in an era of high debt, demographic change, and persistent global uncertainty.
While ministers argue that flexibility is essential to support growth and protect public services, critics warn that postponing difficult decisions only increases the risks leaving future governments with fewer options and higher costs.
As Hughes made clear, the stakes are not merely technical or theoretical. Without stronger fiscal discipline and a larger buffer against shocks, Britain could find itself dangerously exposed when the next crisis arrives with far less room to respond than its peers.