Chancellor Reeves Eyes Major Fiscal Rule Overhaul to Unlock £57 Billion for UK Infrastructure
October 10, 2024Chancellor Rachel Reeves is contemplating significant changes to the UK's fiscal rules ahead of the upcoming Budget on October 30, which could potentially unlock an additional £57 billion for infrastructure projects.
Reeves faces criticism from opposition parties for perceived manipulation of fiscal rules, while Cabinet ministers argue that previous fiscal frameworks hindered investment.
Reports suggest that Reeves may exclude losses from the Bank of England's asset-purchase programs from debt calculations to facilitate more investment.
Despite some support within Labour for changing debt rules, there are concerns about potential cuts to capital spending amid a £22 billion shortfall in public finances.
As Reeves navigates these fiscal challenges, a Treasury analysis has revealed a £22 billion shortfall in public spending, complicating her plans.
The repayment of the Bank of England's pandemic support has inflated the national debt measure, complicating the government's debt reduction targets.
The government has committed to reducing national debt as a percentage of the economy over the next five years, despite the challenges posed by rising borrowing costs.
Reeves has acknowledged the need for 'tough decisions' but has ruled out a return to austerity measures.
She plans to revise budget rules to aim for a balanced budget excluding investments, rather than allowing for a 3% overall deficit.
IFS Director Paul Johnson emphasized that to boost investment spending and adequately fund public services, Reeves must consider raising taxes, increasing borrowing, or both.
The Institute for Fiscal Studies (IFS) has indicated that Reeves' upcoming budget could be the most significant since 2010, necessitating substantial tax increases to balance the budget by 2028-29.
Reeves will receive the first analysis from the Office for Budget Responsibility regarding her budget measures on the same day as a summit aimed at attracting international investment.
Summary based on 6 sources
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Sources
The Guardian • Oct 8, 2024
Reeves to press ahead with capital spending plans despite rising debt costsBBC News • Oct 9, 2024
Budget plan to spend billions more won’t stop tax risesThe Independent • Oct 8, 2024
Labour urged to make simple fiscal rule change to unlock £57 billion at BudgetThe Independent • Oct 10, 2024
Rachel Reeves warned up to £25bn of tax rises needed to avoid austerity