Chancellor George Osborne and chief secretary to the Treasury Danny Alexander have updated the charter for Budget Responsibility with two main objectives.
The charter sets out the government’s approach to operating fiscal policy transparently and managing sustainable public finances in the long-term interests of the UK.
The current Charter for Budget Responsibility was first set in 2010 and reflected the fiscal challenge the government faced.
The mandate targets returning the cyclically-adjusted current budget to balance over a rolling five-year period, supplemented by a target to put debt on a declining path by the end of financial year 2015 to 2016.
Public sector net borrowing as a percentage of GDP has fallen by more than a third since 2009 to 2010 and is forecast to have fallen by half by the end of 2014 to 2015.
The current fiscal mandate will lapse at the end of this parliament and so the Autumn Statement 2014 update presents a new fiscal framework, following a review by the government.
The updated charter commits the coalition government to two objectives. The fiscal mandate will now target returning the “cyclically-adjusted current budget to balance over a three-year rolling horizon”.
Therefore, at Budget 2015, the target year for the fiscal mandate will be 2017 to 2018.
The Treasury stated: “This reflects the progress that has been achieved in tackling the deficit, which means that the mandate can be safely shortened to create a tighter constraint on future fiscal policy choices.”
The charter also sets a new supplementary target for debt to be falling as a percentage of GDP in 2016 to 2017. The Office for Budget Responsibility forecasted that public sector net debt will peak in 2015 to 2016 at 81.1 per cent of GDP.
A debate and vote on the charter will be scheduled in the House of Commons for early in the new year.
Mr Osborne added: “Thanks to our long term economic plan, we will have halved the deficit by the end of this parliament.
“I have always been clear that more tough choices will need to be made in the next parliament to eliminate the deficit and get debt falling. This charter entrenches the commitment to finish the job and maintain economic stability.”