Rachel Reeves urged to set 'significantly larger' fiscal buffer

A cross-party House of Lords Economic Affairs Committee report published on 28 April 2026 recommends that Chancellor Rachel Reeves operate with a ‘‘significantly larger’’ fiscal buffer under her fiscal rules, warning that the current path for public debt is unsustainable. The report urges the government to rebuild meaningful headroom to withstand forecast errors and unexpected shocks.

The committee notes that Reeves increased the primary headroom to about £22bn in last year’s budget by raising taxes, but argues that this level remains low compared with the roughly £30bn average seen between 2010 and 2022. The peers criticized successive governments for treating buffers as a ‘‘war chest’’ to be depleted, which can leave fiscal policy vulnerable when adverse events occur.

The Lords’ advice has immediate implications for markets and debt management: smaller buffers reduce the Treasury’s room to respond and can translate into higher gilt yields or wider risk premia if investors see fiscal fragility. The Office for Budget Responsibility (OBR) has previously highlighted vulnerabilities in the public finances and will publish further fiscal risks analysis this year, a point the committee says should inform parliamentary debate and policy design.

Beyond the immediate numbers, the report criticizes an interpretive gap in the fiscal rules: meeting the supplementary debt target by the third year of the forecast can still be consistent with rising debt over the medium term. The peers recommend a stricter reading — in normal times debt in year three should be lower than in year one — and call for greater attention to OBR sustainability reports while allowing government policy choices where evidence supports them.

Market commentators expect the report to increase pressure on the Treasury ahead of the autumn budget, pushing options such as tax rises, spending reprioritisation or stronger contingency planning to enlarge the fiscal buffer. While a larger headroom would reassure investors, the committee underscores that geopolitical shocks and forecasting uncertainty can quickly erode any narrow cushion, reinforcing the case for a more conservative fiscal stance.