Financing the Future: fiscal policy provocations

Across the UK, we find ourselves at a critical juncture. We face a landscape of constrained public finances, flatlining economic growth, and rising demand for public services driven by deep-seated social and environmental challenges. Yet our fiscal frameworks remain anchored in overly short-term models that fail to reflect or enable the broader policy outcomes that matter to our communities.

At Carnegie UK our Financing the Future programme has been exploring a vital question: how can we use public finance and fiscal processes to improve collective wellbeing? Our work has highlighted that embedding wellbeing in budget processes requires more than one-off changes. It demands a fundamental culture shift and coordinated structural reform.

To develop these issues further and prompt debate, we have published three policy provocation papers on areas of policy interest. These are not definitive policy positions, but rather an invitation to practitioners and policymakers to consider and explore new ways of aligning our public spending with the long-term needs of people, places, and future generations. Our three policy provocation papers cover the following topics:

Wellbeing cost benefit analysis

Current cost-benefit approaches across the UK too often focus narrowly on immediate financial returns. Despite the existence of wellbeing cost benefit analysis guidance in the Treasury Green Book, we are advocating for the greater adoption of  Wellbeing Cost Benefit Analysis approaches – such as those like New Zealand’s CBAx model or, closer to home, the cost benefit analysis tool used by the Greater Manchester Combined Authority. By assessing policy impacts across diverse wellbeing domains, governments can better prioritise preventative investments and help ensure every pound spent delivers maximum value to improving our collective wellbeing.

Second round fiscal effects

Fiscal planning in the UK is robust but often static, missing the dynamic interactions between policy choices. Our second provocation paper calls for governments to better monitor Second Round Fiscal Effects (SRFEs): the longer-term savings or costs that arise when a policy changes the demand for public services. Better modelling and understanding of these effects is essential for fiscal offsetting, allowing us to capture long-term savings from successful preventative interventions and reinvest them where they are needed most.

Enhancing devolved borrowing powers

Finally, we must address the fiscal constraints facing our devolved nations. Current devolved borrowing arrangements are tightly capped and inconsistent, limiting the ability of Scotland, Wales, and Northern Ireland to plan for major transitions like climate mitigation or lifelong learning. We have looked at replacing restrictive borrowing cash caps with more mature and flexible, rules-based limits covering both resource and capital borrowing. Greater borrowing autonomy could help empower devolved governments to invest more significantly in long-term, outcomes-focused policies that enhance collective wellbeing.

Moving beyond business as usual

These provocations on technical reforms to borrowing powers, modelling dynamic effects and valuing wellbeing are not ends in themselves. They represent our current thinking on some of the  tools we need to move beyond business-as-usual fiscal policy approaches and towards a more resilient, accountable, and mature fiscal settlement for the UK. We have deliberately framed these papers as provocations because there is much we are still learning about and grappling with in these areas of wellbeing policy. We genuinely welcome and encourage feedback and critique of these ideas as we continue to develop our thinking on how our approach to public finances can evolve to better serve our collective wellbeing.