Rachel Reeves should aim to run a “significantly larger” buffer against her fiscal rules, according to a report from a House of Lords committee that says the UK’s public debt is on an unsustainable trajectory.

The chancellor raised taxes at last year’s budget in order to more than double the “headroom”, or buffer, against her fiscal rules to £22bn – some of which is expected to be eroded by the impact of the Iran war.

But the Lords economic affairs committee says Reeves should aim to raise it more, and complains that she and her recent predecessors have tended to allow themselves too little room for manoeuvre, compared with the £30bn average between 2010 and 2022.

“Despite the recent increase in the size of the buffer, it remains at an historically low level and further substantial increases are still required,” it says. “Significantly larger buffers must become the norm.”

It criticises successive governments for treating fiscal buffers as “war chests” to be run down to a minimum, “with all the destabilising implications for potentially chaotic policy change this brings”.

The high-powered committee, chaired by the Labour peer Stewart Wood, includes the former Treasury permanent secretary Terry Burns, the economist Alison Wolf, and the former chancellor Norman Lamont, who has stepped down since the inquiry into the UK’s fiscal framework was completed.

“Not just this government, but governments for a long time, have been operating at such a dangerously low level of fiscal headroom that they’re sort of operating near the cliff-edge,” Wood told the Guardian.

In the report, Fortifying the Fiscal Framework, the peers sound the alarm about the long-term path of fiscal policy, echoing recent warnings from watchdog the Office for Budget Responsibility (OBR).

“On current tax and spending settings, the UK is on a path to unsustainable debt levels,” the report says. “These issues should be of paramount concern for the government, not least because the last few decades have repeatedly shown that crises occur sufficiently often that benign projections prove overly optimistic.” As if to underline their argument, another crisis, the conflict in the Middle East, has occurred in the course of the committee’s inquiry.

The peers call for more attention to be paid to the OBR’s annual “fiscal risks and sustainability report”, including a House of Commons debate led by the chancellor.

The most recent such report highlighted the much higher than expected costs of the pensions triple lock, and the risks posed by a lack of long-term, loyal buyers in government debt markets.

While the peers do not recommend substantially rewriting the fiscal rules, which have repeatedly been revised, they do call for a stricter interpretation of Reeves’s second fiscal rule, on debt.

Like those of her predecessors, this rule calls for debt to be falling in the last year of the forecast period – which has been cut to three years.

The committee joins other experts in warning that this can still be met by tax and spending plans that involve debt rising for two years, before falling in the third.

Instead, they would like to see Reeves commit to interpreting the rule more strictly, such that “in normal times, debt in the third year is lower than in the first year”.

Critics of the OBR have argued that it is too influential on government policy, and accused it of failing to recognise fully the benefits of public investment, thus tying the Treasury’s hands.

But the report suggests governments should feel free to press ahead with policies, even where the OBR declines to “score” them as economically beneficial in its assessments.

“The OBR’s not scoring certain policies should be no barrier to their implementation,” the report finds. “If the government believes they will be beneficial, they should implement them. Something has gone wrong with the policymaking process if the OBR’s decision not to score a policy determines that it will not be taken forward when the government believes it to be valuable.”

The last chair of the OBR, Richard Hughes, resigned after details of last year’s budget were inadvertently published early. The Treasury is in the process of recruiting a successor, ahead of what is expected to be a tough autumn budget, with the conflict in the Middle East likely to depress economic growth.

A Treasury spokesperson said: “The UK has one of the most robust fiscal frameworks in the world which helps maintain economic stability while unlocking £120bn of investment in our future infrastructure with disciplined day-to-day spending.”