The Inescapable Fiscal Trilemma
Every government faces three levers — and must pick at least one
Miller's central analytical claim is that any government facing a structural deficit has exactly three levers: raise taxes, cut spending, or borrow more for day-to-day purposes. There is no fourth option. When governments refuse to acknowledge this — as both Labour and Conservative parties did going into the 2024 UK election — they are not solving the problem, they are deferring which lever to pull.
The framework is useful precisely because politicians routinely imply they have found a fourth path: growth. Miller acknowledges that higher growth makes all three levers easier to deploy but argues growth is not a lever in the short run and cannot substitute for hard choices about the mix. A government that says 'we'll grow our way out of it' without specifying which of the three levers it is pulling in the meantime is making a category error.
Applied to the 2024 Labour government: they went into the election ruling out tax rises and significant borrowing, leaving spending cuts as the only credible lever — yet also ruled out most categories of spending cuts. This left them with a contradictory position. Post-election, they resolved it by pulling both the borrowing and the tax lever simultaneously, but without having prepared the public, generating mistrust. The framework predicts this outcome: the constraint doesn't disappear because politicians won't name it.
- Any government facing a structural deficit must pull at least one of three levers: raise taxes, cut spending, or borrow more.
- Growth is a background condition that makes all three levers easier — it is not a substitute for choosing among them.
- Refusing to name which lever you will pull does not remove the constraint; it only destroys credibility when reality forces the choice.
- Pre-election tax pledges that rule out large categories of revenue constrain future reform and increase the cost of raising money.
- Citizens deserve to understand the real trade-off so they can make an informed democratic choice about which lever to endorse.
- Quantify the structural gapEstablish the size of the gap between projected revenues and planned spending on day-to-day services, excluding investment and debt servicing. This is the number that must be closed by some combination of the three levers.Pro tipUse an independent forecaster's assumptions rather than the government's own — historically governments assume higher growth, which understates the gap.WarningStructural gaps change with the economic cycle. Distinguish cyclical deterioration (resolves with growth) from structural deterioration (persists regardless).
- Enumerate what each lever rules in and outFor any specific government, list which tax categories have been ring-fenced, which spending is protected, and which borrowing rules constrain deficit expansion. The overlap of these restrictions defines what is actually available.Pro tipA government that has pre-committed to multiple ring-fences is not more disciplined — it has simply transferred the constraint to the remaining options, making them do disproportionate work.
- Evaluate growth assumptions independentlyCheck whether the fiscal plan closes the gap through growth rather than through explicit lever choices. If so, compare the government's growth forecast to independent forecasters. A plan that closes only if growth reaches an optimistic projection is not a credible plan.Pro tipThe OBR has historically been more optimistic on growth than consensus forecasters, so even its independent assessment tends to flatter fiscal plans.WarningGrowth that raises tax revenues proportionally does help — do not dismiss it. But insist on knowing which lever closes the remaining gap when growth alone is insufficient.
- Assess communication honestyEvaluate whether the government has been transparent with the public about which lever it is pulling and why. Lever-pulling done without preparation generates backlash; lever-pulling that follows an honest public case can be sustained.Pro tipMiller's benchmark: did the government explain the problem, name the trade-off, and make a principled case for its choice before the election — or did it wait until forced?
- Track which lever is actually being pulled vs statedGovernments often say 'growth' or 'efficiency savings' while actually pulling a different lever quietly. Check whether revenues are rising faster than the economy, whether protected budgets are in real terms declining, or whether the deficit is widening relative to plan.Pro tipThe IFS Green Budget is a useful annual reality check for the UK — it systematically maps stated versus revealed fiscal choices.
Both Labour and Conservative parties entered the 2024 election saying taxes wouldn't rise significantly, borrowing was under control, and spending commitments were affordable. IFS publicly warned before the election that this arithmetic did not add up and that one or more levers would have to be pulled post-election.
Labour pledged not to raise 'taxes on workers.' They raised employer National Insurance contributions, arguing this was technically a tax on employers. Miller's view: NI contributions are definitionally NI contributions, so the pledge was definitionally broken.
Miller described pre-election tax pledges as a trade person saying 'I'm leaving half my tools at home' before knowing what job they'll be called to do. Ruling out large tax categories before seeing the fiscal position removes flexibility needed to make coherent policy.
Miller developed this framing at IFS over many years of analysing pre-election manifestos, where she and colleagues consistently identified the gap between stated fiscal commitments and arithmetic reality. The starkest recent application was the 2024 general election, where IFS publicly warned that both major parties were making incompatible promises. The warning proved accurate when Labour's first budget required both additional borrowing and the largest tax rise in a generation.