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The forecast distance between the government’s projected fiscal outcome and the threshold required by a specified .
Save conceptFiscal headroom describes how much room a forecast leaves before a government would fail a specified . It is measured relative to that particular target, using its definition and comparison year. It is not money set aside in a separate bank account. A government can appear to have headroom in a later forecast year even while facing difficult funding choices today.
Forecast tax receipts, public spending, debt-interest costs and economic assumptions influence the projected outcome. A rise in one cost can reduce headroom, while stronger receipts can offset some of it. The calculation also depends on the rule: a target for day-to-day spending differs from a target involving total debt. Always identify both the threshold and the year when comparing estimates.
Suppose a rule requires day-to-day spending not to exceed receipts in a future year. Hypothetical forecast receipts of 60 units and spending of 55 units leave a five-unit buffer, because 60 minus 55 equals five. If spending rises by three units with receipts unchanged, the buffer falls to two. These invented units illustrate the calculation; they are not current UK budget figures.
A projected buffer can depend on spending cuts or efficiency improvements that may be difficult to deliver. It therefore does not establish that the spending plan is credible or that services have sufficient resources. Headroom is also uncertain: small forecast changes can move it substantially. Distinguish it from the extra cost of a policy ambition and from cash actually available.
IFS urges credible UK spending plans as inflation adds budget pressure