Reeves to amend fiscal rules, boost public investment borrowing by £50bn
Chancellor reeves aims to boost public investment borrowing, maintaining spending rules
Rachel Reeves plans to amend the government’s fiscal rules in the upcoming budget to enable an increase in public investment borrowing by about £50bn. Speaking from Washington DC, the chancellor mentioned that the current self-imposed rule, which requires borrowing to decrease by the fifth year of economic forecasts, will be redefined from the existing measure of public sector net debt.
She did not specify the new measure but hinted at the possibility of using public sector debt net of financial liabilities (PSNFL). This definition would consider investments like the government’s student loans book as assets rather than liabilities, allowing for an additional £53bn in borrowing under current measures.
The chancellor confirmed that the second fiscal rule, which mandates that day-to-day spending be funded by government revenue rather than borrowing, will remain unchanged.
Reeves to announce major change to fiscal rules releasing £50bn for spending -MS Reeves has just transmogrified into Ms Truss, as I predicted in my recent https://t.co/ufaREd3pmz may prove a move in the right direction BUT she needs to temper Net Zero https://t.co/A7OK8l5BDE
— John Longworth (@john4brexit) October 24, 2024
Support for increasing the debt threshold comes from prominent British economists and the International Monetary Fund, which recently stated the importance of protecting public investment in the UK. Ms Reeves argued that the change is crucial to reverse years of declining public investment and fulfil Labour’s growth promises.
She criticised the previous Conservative government’s plans, which projected a sharp decline in public sector net investment as a share of the economy. She emphasised the need to invest in sectors such as life sciences, carbon capture, storage, clean energy, AI, and technology, as well as repairing deteriorating schools and hospitals.
Ms Reeves denied accusations of manipulating the rules to circumvent her manifesto pledge not to raise income tax, VAT, or national insurance. She stressed the importance of the stability rule, ensuring that day-to-day spending is covered by tax receipts, a goal the previous government failed to achieve. She assured that the budget would demonstrate how her administration will uphold this promise.
She highlighted the necessity of responsible governance, ensuring value for money for every pound of taxpayers’ money spent, and involving the National Audit Office and the Office of Budget Responsibility.
The bond markets showed a slight rise on Thursday in response to reports of Ms Reeves’s plans. The redefined fiscal rules suggest a budget that will likely involve tax increases and public spending cuts, balanced by increased borrowing flexibility.
BREAKING: Rachel Reeves will rewrite the government's fiscal rules in next week's budget to allow her to increase borrowing for public investment by around £50bn.
The Chancellor has been speaking to Sky's @pkelso about the change 👇
https://t.co/PAiZ4D1jU3📺 Sky 501 pic.twitter.com/zRy3VJwx28
— Sky News (@SkyNews) October 24, 2024
Ms Reeves did not rule out potential tax increases, including adding national insurance to employers’ pension contributions, with possible exemptions for public sector employers. She acknowledged the need for difficult decisions regarding spending, welfare, and taxation but promised to provide detailed information to the House of Commons next week.
Gareth Davies, shadow exchequer secretary, criticised Ms Reeves for allegedly planning to break her promise not to alter the fiscal rules and for informing the IMF rather than Parliament. He warned that this uncertainty could lead to higher borrowing costs and prolonged elevated interest rates, impacting families across the country.
Frequently Asked Questions
Here are some common questions asked about this news
What change is Rachel Reeves planning for the fiscal rules?
She plans to amend rules to allow an additional £50bn in public investment borrowing.
What is the current fiscal rule related to borrowing?
The current rule requires borrowing to decrease by the fifth year of economic forecasts.
What might the new fiscal measure be?
It might use public sector debt net of financial liabilities (PSNFL).
Will the rule about day-to-day spending change?
No, it will remain that day-to-day spending must be funded by government revenue.
Who supports the increase in the debt threshold?
Prominent British economists and the International Monetary Fund support it.
