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  • The financial crisis and associated recession have reduced revenues and, to a greater extent, increased public spending as a share of national income. Without action, there would have been an unsustainable increase in borrowing and debt. The government's spending cuts and tax rises are forecast to be sufficient to return the UK's public finances to a sustainable position, but the same would have been true under the fiscal consolidation plan set out by Labour in its March 2010 Budget.
  • Between 2010 and 2015, the IMF forecasts that most other industrial countries will reduce government borrowing by less than the UK: out of 29 industrial countries, only Greece is forecast to have a sharper decline in cyclically-adjusted borrowing.
  • The government has introduced a new independent Office for Budget Responsibility (OBR) to help enhance the credibility of official forecasts. The transparency and presentation of official forecasts have already been improved since the OBR was established; the OBR, the Treasury and other departments should continue to build on this. There is a case for extending the remit of the OBR so that it is able to consider the impact of alternative policy options, at least in some limited circumstances such as the run-up to a general election.
  • The government has set itself a new forward-looking fiscal mandate, that policy is consistent with achieving at least a cyclically-adjusted current budget balance by the end of the forecast horizon, and a supplementary target to reduce debt as a share of national income between 2014-15 and 2015-16. The OBR judges that current policy is consistent with the fiscal mandate, and forecasts that the supplementary target is more likely than not to be met. But if the OBR's forecasts are as accurate as past Treasury forecasts, there would still be a three-in-ten chance that further tax rises or spending cuts would be required to avoid a cyclically-adjusted current budget deficit in 2015-16.
  • Compliance with the two fiscal targets does not ensure fiscal sustainability. The government's fiscal mandate will require careful monitoring to ensure that it is not being achieved only through policies that are always promised but never implemented. The supplementary target - to reduce debt - applies only to 2015-16; the government should consider what profile of debt it wishes to target beyond that date, taking into account likely pressures on the public finances such as those arising from an ageing population. There are merits in a 'sustainable commitments rule' which would place a ceiling on the flow of future debt interest and other precommitted payments, rather than on the stock of accumulated public sector debt.