The UK government is contemplating a shift to a single annual assessment of public finances, prompted by recommendations from the International Monetary Fund (IMF). This change aims to reduce the frequency of policy adjustments driven by the current twice-yearly evaluations conducted by the Office for Budget Responsibility (OBR).

The IMF, in its annual review of the UK economy, suggested that less frequent assessments could prevent abrupt policy shifts triggered by minor fluctuations in economic forecasts. The OBR’s biannual reviews recently forced Chancellor Rachel Reeves to propose £5 billion in health-related welfare cuts, only for these to be overturned after a Labour backbench rebellion last month. The IMF argued that allowing more flexibility in fiscal rules would better shield the government from breaching borrowing limits due to unexpected economic shifts, such as disappointing growth or rising interest rates.

Fiscal rules, self-imposed by many affluent nations, are critical for maintaining credibility with financial markets, which governments rely on for borrowing. The IMF commended the UK’s “bold” pro-growth reforms and credible medium-term borrowing plans, noting that recent trade deals position the UK to navigate global uncertainties. However, it cautioned that the government’s limited financial buffer leaves it vulnerable to economic shocks.

To strengthen fiscal resilience, the IMF proposed reforms such as replacing the state pension triple lock, expanding VAT coverage, means-testing additional benefits, and introducing co-payments for wealthier NHS users. These measures could provide a larger buffer against economic volatility but may lead to significant tax increases at the upcoming autumn Budget.

The consideration of the IMF’s advice signals an acknowledgment that the current biannual assessments create pressure for frequent policy tweaks to meet borrowing targets. Treasury officials emphasized their commitment to “non-negotiable” fiscal rules while expressing openness to the IMF’s recommendations for enhancing policy stability. The Institute for Fiscal Studies recently echoed this sentiment, advocating for a less rigid Spring Statement and looser borrowing targets to avoid constant adjustments to tax and spending plans.

Chancellor Reeves is adhering to two primary fiscal rules: covering day-to-day government costs with tax revenue rather than borrowing, and ensuring debt falls as a share of national income by the end of the current parliament in 2029-30. Responding to the IMF, Reeves stated, “The IMF’s report confirms our choices are driving Britain’s economic recovery. Our fiscal rules enable us to address deep-rooted challenges while investing in the nation’s renewal.”

As the government navigates these recommendations, the potential shift to annual assessments could reshape fiscal policy, offering stability but possibly necessitating tougher tax decisions to safeguard against global economic uncertainties.