| The fiscal rules 08:21 - Sep 26 with 2209 views | DJR |
This, from the FT is to be welcomed, as I always thought the Tory fiscal rules were too tight and that Labour was wrong to stick to them. This report follows similar reports in the Guardian and the Telegraph in recent days.
Sir Keir Starmer has cleared the way for a big increase in capital spending at next month’s Budget, as his government won the backing of the Paris-based OECD for reforms to boost growth-enhancing public investment.
Speaking in New York, the prime minister said he wanted government spending to act as a “catalyst” to private investment, and signalled he believed the UK’s fiscal rules should be designed to aid capital spending. “I’ve always thought that we should borrow to invest,” he said.
Chancellor Rachel Reeves will set out revised fiscal rules at the Budget on October 30, with Whitehall insiders saying she wants to ensure they do not stop billions of pounds being invested in areas such as the green energy transition, roads and hospitals.
Before the election, Starmer slashed Labour’s flagship green spending plan from £28bn annually to just £4.7bn a year because of the fragile state of the public finances. Some of those cuts could now be reversed.
Starmer insisted there was a difference between borrowing to fund day-to-day spending and using public debt to finance investment, which he said could help grow the economy.
Speaking on the margins of the UN General Assembly, he told the BBC: “Borrowing and public investment have to come alongside private investment, to be a catalyst for it.”
His comments came as the OECD, a think-tank for 38 mostly rich countries, urged the UK to rewrite its “short-termist” fiscal rules to allow higher public investment that would drive growth.
Alvaro Pereira, the OECD’s chief economist, said the fiscal rules could lead to “the deterioration of the public finances in the long run”, given the need to improve Britain’s infrastructure and boost productivity.
The existing rules are based on a rolling five-year horizon, which Pereira said gives ministers an incentive to delay cuts in day-to-day spending but makes it hard to justify long-term investment.
Reeves paved the way for higher capital spending during a speech at the Labour party conference on Monday, in which she vowed to end the “low investment that feeds decline”.
Government officials are considering a range of options to loosen constraints on investment imposed by the existing fiscal rules, which require debt to fall as a share of GDP in five years’ time.
Reeves wants the Treasury to better recognise the benefits of investment, rather than primarily the costs.
As part of this, officials are examining alternative measures of the government balance sheet that reflect the assets created via investment, and not just the liabilities.
IMF researchers have argued that gauges of the government finances such as public sector net worth are more “conducive” to investment.
Another metric under examination in the Treasury is public sector net financial liabilities, which counts a wider range of assets than the existing government debt gauge, potentially substantially increasing budgetary headroom.
The government also wants to better reflect the assets of state investment vehicles such as its national wealth fund and Great British Energy, as well as their liabilities, or to shift them off the official balance sheet.
[Post edited 26 Sep 2024 8:25]
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| The fiscal rules on 09:58 - Sep 26 with 2029 views | Guthrum |
Always been in favour of governments using their financial muscle to stimulate infrastructure and business investment. |  |
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| The fiscal rules on 10:09 - Sep 26 with 1999 views | J2BLUE |
Surprised the Tories didn't do this to hand out more cheques to their mates. |  |
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| The fiscal rules on 10:21 - Sep 26 with 1938 views | Guthrum |
| The fiscal rules on 10:09 - Sep 26 by J2BLUE |
Surprised the Tories didn't do this to hand out more cheques to their mates. |
We'll see what investigations into Covid pandemic spending turn up. | |
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| The fiscal rules on 10:35 - Sep 26 with 1899 views | WeWereZombies |
| The fiscal rules on 10:09 - Sep 26 by J2BLUE |
Surprised the Tories didn't do this to hand out more cheques to their mates. |
If it is OECD backed then they would have had to get it past independent regulators rather than tame ones...
Would like to see the Audit Commission revived, doing away with that was a red flag if ever there was one regarding the conduct of the last government. |  |
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| The fiscal rules on 11:22 - Sep 26 with 1818 views | lowhouseblue |
it's going to be a very interesting budget. |  |
| And so as the loose-bowelled pigeon of time swoops low over the unsuspecting tourist of destiny, and the flatulent skunk of fate wanders into the air-conditioning system of eternity, I notice it's the end of the show |
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| The fiscal rules on 11:48 - Sep 26 with 1761 views | DJR |
| The fiscal rules on 10:35 - Sep 26 by WeWereZombies |
If it is OECD backed then they would have had to get it past independent regulators rather than tame ones...
Would like to see the Audit Commission revived, doing away with that was a red flag if ever there was one regarding the conduct of the last government. |
It was obviously the case that the government would have to get various bodies on board with this (as opposed to doing a Liz Truss who probably would never have got consent anyway because what she did was batsh*t crazy) but many leading economists have argued for this in recent months, so I think it was never going to be a difficult task.
Incidentally, the Telegraph has reported it as freeing up £50 billion of spending, so maybe the tax/spending cuts won't be as severe as we have been led to believe.
This from their article: the change in the percentage of debt to GDP being pretty dramatic.
"While Ms Reeves has vowed to stick to the second goal, it is understood that she is considering switching the debt measure away from rules that only take into account the spending implications of investment. It would also strip out the impact of rising student debt.
The measure – known as public sector net financial liabilities – is already forecast by the Office for Budget Responsibility (OBR) in its twice-yearly assessment of the public finances.
In March, its forecasts showed that targeting this measure would see debt as a share of GDP fall every year to 78.7pc in 2028-29, from 80.6pc in 2027-28, or more than £50bn in cash terms.
This compares with predecessor Jeremy Hunt’s headroom of just £8.9bn under the existing rules, which see debt falling only marginally from 93.2pc of GDP to 92.9pc in 2028-29.
Switching to this measure would also allow Ms Reeves to borrow £7.3bn for her National Wealth Fund." [Post edited 26 Sep 2024 12:20]
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| The fiscal rules on 12:06 - Sep 26 with 1720 views | lowhouseblue |
| The fiscal rules on 11:48 - Sep 26 by DJR |
It was obviously the case that the government would have to get various bodies on board with this (as opposed to doing a Liz Truss who probably would never have got consent anyway because what she did was batsh*t crazy) but many leading economists have argued for this in recent months, so I think it was never going to be a difficult task.
Incidentally, the Telegraph has reported it as freeing up £50 billion of spending, so maybe the tax/spending cuts won't be as severe as we have been led to believe.
This from their article: the change in the percentage of debt to GDP being pretty dramatic.
"While Ms Reeves has vowed to stick to the second goal, it is understood that she is considering switching the debt measure away from rules that only take into account the spending implications of investment. It would also strip out the impact of rising student debt.
The measure – known as public sector net financial liabilities – is already forecast by the Office for Budget Responsibility (OBR) in its twice-yearly assessment of the public finances.
In March, its forecasts showed that targeting this measure would see debt as a share of GDP fall every year to 78.7pc in 2028-29, from 80.6pc in 2027-28, or more than £50bn in cash terms.
This compares with predecessor Jeremy Hunt’s headroom of just £8.9bn under the existing rules, which see debt falling only marginally from 93.2pc of GDP to 92.9pc in 2028-29.
Switching to this measure would also allow Ms Reeves to borrow £7.3bn for her National Wealth Fund." [Post edited 26 Sep 2024 12:20]
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"freeing up £50 billion of spending, so maybe the tax/spending cuts won't be as severe as we have been led to believe."
i suspect that relaxation / revision of the fiscal rule in this way would still be accompanied by a very strict approach to current (non-investment) spending. | |
| And so as the loose-bowelled pigeon of time swoops low over the unsuspecting tourist of destiny, and the flatulent skunk of fate wanders into the air-conditioning system of eternity, I notice it's the end of the show |
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| The fiscal rules on 12:11 - Sep 26 with 1685 views | DJR |
| The fiscal rules on 12:06 - Sep 26 by lowhouseblue |
"freeing up £50 billion of spending, so maybe the tax/spending cuts won't be as severe as we have been led to believe."
i suspect that relaxation / revision of the fiscal rule in this way would still be accompanied by a very strict approach to current (non-investment) spending. |
I'm not denying that, only suggesting that the government has been over-egging the pain, intending people to be pleasantly surprised when things don't turn out so bad.
On the other hand, this approach could be said to have backfired a bit because it seems to have affected confidence, both business and consumer. [Post edited 26 Sep 2024 12:19]
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| The fiscal rules on 12:35 - Sep 26 with 1605 views | lowhouseblue |
| The fiscal rules on 12:11 - Sep 26 by DJR |
I'm not denying that, only suggesting that the government has been over-egging the pain, intending people to be pleasantly surprised when things don't turn out so bad.
On the other hand, this approach could be said to have backfired a bit because it seems to have affected confidence, both business and consumer. [Post edited 26 Sep 2024 12:19]
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or, in the knowledge that they were seeking to change the rule, they have set out to maximise fiscal credibility by taking a tough line on spending so as to minimise any financial market reaction to the rule change? | |
| And so as the loose-bowelled pigeon of time swoops low over the unsuspecting tourist of destiny, and the flatulent skunk of fate wanders into the air-conditioning system of eternity, I notice it's the end of the show |
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| The fiscal rules on 21:00 - Sep 26 with 1354 views | BlueForYou |
No need to cut pensioners fuel allowance then..!! |  | | |
| The fiscal rules on 16:39 - Sep 27 with 1119 views | WeWereZombies |
I've read a few pages at the start and the summary at the end, there is a lot to digest there. A couple of caveats though. It does read like a polemic that has had economic data fitted into it as necessary at times, it isn't just that assumptions have not been stated but the cases where this occurs are often fundamental to the arguments.The cherry picking of ecomic date is troubling, e.g. a graph showing the United Kingdom finally catching up and briefly overtaking German GDP in 2005 fails to mention that for the preceding fifteen years the German economy had been accommodating the effects of reunification. Later comments about the speed of Poland's growth had similarly not acknowledged the effect of post Soviet rejuvenation. | |
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| The fiscal rules on 16:41 - Sep 27 with 1109 views | DanTheMan |
| The fiscal rules on 16:39 - Sep 27 by WeWereZombies |
I've read a few pages at the start and the summary at the end, there is a lot to digest there. A couple of caveats though. It does read like a polemic that has had economic data fitted into it as necessary at times, it isn't just that assumptions have not been stated but the cases where this occurs are often fundamental to the arguments.The cherry picking of ecomic date is troubling, e.g. a graph showing the United Kingdom finally catching up and briefly overtaking German GDP in 2005 fails to mention that for the preceding fifteen years the German economy had been accommodating the effects of reunification. Later comments about the speed of Poland's growth had similarly not acknowledged the effect of post Soviet rejuvenation. |
Agreed, I'm not sure I agree with a lot of their conclusions but there's still some interesting things in there. |  |
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| The fiscal rules on 17:47 - Sep 27 with 1024 views | DJR |
| The fiscal rules on 16:39 - Sep 27 by WeWereZombies |
I've read a few pages at the start and the summary at the end, there is a lot to digest there. A couple of caveats though. It does read like a polemic that has had economic data fitted into it as necessary at times, it isn't just that assumptions have not been stated but the cases where this occurs are often fundamental to the arguments.The cherry picking of ecomic date is troubling, e.g. a graph showing the United Kingdom finally catching up and briefly overtaking German GDP in 2005 fails to mention that for the preceding fifteen years the German economy had been accommodating the effects of reunification. Later comments about the speed of Poland's growth had similarly not acknowledged the effect of post Soviet rejuvenation. |
I haven't read it all but it strikes me as being a good source of information although I am also not convinced by some of its reasoning and explanations.
The odd thing is that the website has no background information but clicking on the names at the top reveals that one of the authors is an executive director of the Adam Smith Institute and one works for the Centre for Policy Studies, both right wing think tanks.
This presumably explains provisions like the following, which I would take issue with, and could be said to be somewhat at variance with the following paragraph.
"Privatisation, tax cuts, and the curbing of union power fixed important swathes of the UK economy. Crucially, they tackled chronic underinvestment in sectors that had been neglected under state ownership."
"And yet, despite these high taxes, onerous regulations, and powerful unions, French workers are significantly more productive than British ones – closer to Americans than to us. France’s GDP per capita is only about the same as the UK’s because French workers take more time off on holiday and work shorter hours." [Post edited 27 Sep 2024 17:52]
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