By hannover-web.com Chancellor Rachel Reeves is set to unveil a significant shift in the UK’s debt rules during her address at the International Monetary Fund (IMF) in Washington. This change aims to open up an additional £50 billion for infrastructure projects, marking a pivotal moment for the government’s spending strategy.
In a highly anticipated announcement, Reeves will confirm during the IMF’s annual meetings that next week’s budget will incorporate a new method for evaluating the UK’s debt status. This adjustment will allow the Treasury to increase borrowing for long-term capital investments, a response to the ongoing challenges posed by the pandemic and the cost of living crisis.
The IMF is expected to welcome this change, advocating for prioritization of public investment to address the damage caused to public finances in recent years. While Reeves has not disclosed the specific metric being adopted, a senior government source indicated that the focus will likely be on public sector net financial liabilities (PSNFL), which includes a comprehensive view of the government’s assets and liabilities, such as student loans and equity in private companies.
Before heading to the IMF, Reeves emphasized the importance of economic stability: “A Britain built on the rock of economic stability is a Britain that is a strong and credible international partner. I’ll be in Washington to tell the world that our upcoming budget will be a reset for our economy as we invest in the foundations of future growth.” She underlined the significance of this approach in representing British interests on global issues, including ongoing conflicts in the Middle East and Ukraine.
Reeves has inherited a set of fiscal rules from her predecessor, Jeremy Hunt, which stipulates that day-to-day spending should be covered by revenue, requiring the debt-to-GDP ratio to decline within five years. However, Hunt was only marginally close to meeting his debt target, and had he adopted a PSNFL measure earlier this year, it could have provided an additional £53 billion in borrowing capacity.
The Treasury has indicated that while they might not fully utilize the new borrowing flexibility right away, they will implement “guard rails” to ensure value for money in investment projects, with energy and transport initiatives likely to take priority in the upcoming budget.
Sources suggest that Reeves will not adopt the most radical measure of public sector net worth (PSNW), which encompasses non-financial assets like roads and hospitals. Instead, the primary fiscal rule will still ensure that everyday spending is funded through tax receipts, resulting in projected tax increases and spending cuts totaling up to £50 billion.
By announcing these changes at the IMF, Reeves is not only aligning with a traditionally conservative institution but also aiming to gain the support of influential global finance leaders. This strategic approach contrasts sharply with that of former Prime Minister Liz Truss, whose fiscal policies faced significant scrutiny from the IMF in 2022.
While in Washington, Reeves plans to outline her rationale for the debt rule changes, with more comprehensive details to follow in the budget presentation. The IMF has increasingly advocated for government borrowing aimed at investment, noting the pressing need for public investment in the UK amid declining trends and various challenges such as energy transition and technological advancements.
