Rethinking Fiscal Rules, Growth and Intergenerational Fairness

Published on: December 11, 2025

Insights from the Gen II Dinner Debate with Andrew Verity at Sketch, London

Hosted by Ben Mardon, Head of Real Assets – Europe, and set in the Glade room at Sketch, finance industry leaders gathered for a discussion with Andrew Verity, the BBC Economics Correspondent who has covered more than 30 Budgets over his career. Fresh from a frosty morning at Downing Street, where he heard what he called the ‘Budget of the big freeze’, Verity offered a perspective that challenged many assumptions about public finances, economic growth and the choices governments make about the future. Beyond reporting and analysis of the economic picture, he emphasised he was speaking in a private capacity and any opinions given were his personal views.

Surpluses: Rare, Elusive and Possibly Misunderstood

Verity opened with a quiz. When was the last time a Chancellor delivered a genuine Budget surplus? The answer was Gordon Brown in 2001. That is the only meaningful surplus in more than two decades. In fact, there have been only five surpluses since 1971. The objective of returning to surplus is announced frequently but very rarely achieved.

This raises an important question. Should a modern economy, with complex demographic and productivity pressures, fixate on achieving a surplus? Or should other objectives, more important objectives focused on growth and the prosperity of our children and young people, dominate?

The Tax Threshold Freeze: A Quiet but Significant Tax Rise

One of Verity’s central observations was the scale of the income tax threshold freeze. He noted that it has become the largest tax increase since a Conservative Chancellor doubled VAT in 1979. He cited the Resolution Foundation who calculates that if income tax had been raised by one penny in the pound instead, any household earning under £35,000 would have been better off.

Frozen thresholds, combined with wage inflation, pull workers into higher tax bands. The effect is equivalent to an estimated 4.5p tax rise in the pound. This mechanism is now a central part of the fiscal strategy. It lifts revenue without headline rate increases and is likely to remain in place for years.

For CFOs, this matters. Fiscal drag shapes wage negotiations, employee expectations and disposable incomes right across the workforce.

Fiscal Targets and the Tail that Wags the Dog

A recurring theme was the grip of fiscal targets on political decision making. The current rule that debt must be falling in four years’ time shapes the entire structure of the Budget. Verity likened this to the tail wagging the dog. Governments often commit to targets that no Chancellor can plausibly deliver within the timeframe. Yet these targets still dominate the approach to spending, tax and inward investment in the UK.

Verity highlighted that the £2.5bn allocated to scrapping the two-child benefit limit would lift half a million children out of poverty. This is a relatively modest sum within the total Budget envelope, yet such measures are often overridden by the need to satisfy projections from the Office for Budget Responsibility.

For finance leaders, this mirrors corporate behaviour when businesses prioritise short term covenant metrics at the expense of long-term value creation.

Bond Markets, the Truss Mini Budget and Misread Lessons

The fear of unsettling bond markets has become a defining feature of UK policy since the Truss mini-Budget. Verity argued that the conventional story is incomplete. A key factor was the Bank of England’s shift from buying bonds under quantitative easing to selling them. That created selling pressure and pushed up yields. The mini-Budget collided with this shift rather than causing the entire disruption on its own.

The lesson drawn in Westminster was that governments must never depart from strict fiscal rules again. Verity argued this is the wrong conclusion. A more accurate reading is that bond markets will always react unpredictably when the central bank withdraws its support.

Covid as Proof that Fiscal Constraints Are Not Laws of Nature

Verity used the pandemic as evidence that fiscal rules can be suspended when political will demands it. During Covid, the state effectively created around three hundred billion pounds in spending with the help of the Bank of England, with the majority channelled to government. Much of this was not clearly communicated to the public.

Economic activity was deliberately suppressed, producing the steepest recession in three centuries, yet this was celebrated as a policy success because the recession was intentional and temporary. The following year, borrowing halved as emergency support fell away.

This is a powerful illustration that public finances are choices, not natural constraints.

Growth, Living Standards and Intergenerational Pressure

Verity argued that the UK has experienced the weakest two decades for improvements in living standards to circa two hundred years. Growth has slowed since the introduction of fiscal rules in 1997. Younger generations face a world where wages lag, costs rise and access to housing and asset accumulation is increasingly out of reach.

For CFOs, this has direct implications. Retention, morale, productivity and reward structures are shaped by a demographic shift where younger employees feel economically disadvantaged – and a significant portion of young people seem to be staying out of the workforce completely.

Asset Prices, Housing and Political Incentives

The rise in property values, often celebrated as a sign of prosperity, mainly benefits those who can exit or downsize. For many, rising prices simply redistribute wealth upward. Verity drew parallels with previous cycles, from property booms to the early internet surge to the current AI driven enthusiasm.

He noted the political incentives that shape this. Protecting older, asset rich voters takes priority over investment in younger generations. Policy choices reinforce this skew, with significant support for pensions through the triple lock and relatively small allocations for youth focused spending.

The Need for Better, Longer-Term Thinking

Verity closed by urging a shift toward decisions that prioritise long term national strength and the prospects of future generations. The combination of fiscal rigidity, political caution and repeated short cycles of asset driven optimism leaves the UK exposed to low growth and widening inequality.

For CFOs, his argument is a reminder that long-term thinking inside companies is not only a strategic choice but an economic necessity in an era when public policy is often locked into short timeframes.