Burnham and his team have been discussing how to utilize all possible "flexibility" within the fiscal rules framework. Several main approaches exist:
1. Relying more on investment spending rather than increasing routine spending commitments. The government could increase the proportion of investment spending instead of expanding routine public spending commitments. This approach might worsen the "investment rule" (i.e., the ratio of public sector net financial liabilities (PSNFL) to GDP must decline within the forecast period) but avoids harming the "stability rule" (i.e., government routine public spending must be fully covered by tax revenue by around the target year 2029/30). Markets might be more receptive to this approach if the investment plan is reasonable and can drive future economic growth.
2. Relying on more optimistic economic assumptions, although this is not a factor directly controlled by Burnham and Healy. However, if long-term reforms improve the economic growth outlook, it could prompt the UK Office for Budget Responsibility to revise some forecasts upwards, thereby improving fiscal performance under both the investment and stability rules.
3. Further postponing fiscal consolidation (deficit reduction). This is a less market-friendly approach to utilizing fiscal flexibility because it relies on future spending cuts that may not be implemented. Similar situations have occurred before, such as last year when the Starmer government's policy underwent a "180-degree turn," and the planned reduction measures were not fully implemented.
4. Utilizing more existing fiscal buffer space, but this is another less market-friendly approach. In a climate of high political uncertainty and the potential for further interest rate increases, leaving the government with only a very limited fiscal buffer is tantamount to opening the door to future market panic.
