Rachel Reeves, the UK Chancellor, has confirmed plans to change the country's fiscal rules in her upcoming budget to enable increased public investment through additional borrowing.
She outlined an "investment rule" to prevent cuts to public sector investment, contrasting with the previous Conservative government's planned reduction from 2.4% to 1.7% of GDP by 2028-29, which would have amounted to a £24 billion annual reduction.
Reeves aims to fund about £20 billion a year in extra investment without cutting capital budgets. To achieve this, she plans to use a broader debt measure called "public sector net financial liabilities" (PSNFL), which includes financial assets such as student loans.
This change would provide room to borrow an additional £50 billion annually by the end of the decade, while still meeting the goal of reducing debt as a proportion of GDP. However, Reeves is not expected to access the full borrowing potential immediately.
Her budget will prioritise boosting investment in public services and infrastructure while keeping debt on a downward trajectory during the current parliament, which can last until 2029. She also committed to covering day-to-day government spending with tax revenues, suggesting that tax increases are likely.
Reeves' fiscal approach, aimed at bolstering long-term growth by investing in key sectors like science, technology, and clean energy, comes as the IMF has urged the UK to protect public investment to stimulate economic growth. However, critics like former Conservative Treasury minister Andrew Griffith have accused Reeves of breaking previous promises regarding fiscal transparency.
Source:
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