Panicked Chancellor Rachel Reeves must decide by Wednesday whether to change the Government’s fiscal rules ahead of the Autumn Budget, in an internal deadline set by the Treasury, giving her just a matter of hours to make the choice.
Fiscal rules are restrictions on budgetary policies, set by the Government, to constrain its own decisions on spending and taxes.
Under the last administration, the fiscal rule mandated that net public debt must fall by the fourth to fifth year of the economic forecast. This meant the debt-to-GDP ratio had to be forecast as lower at the end of the fifth tax year than the one before it.
However, the Institute for Public Policy Research (IPPR) think tank, which carries an influence in the Treasury, has urged Ms Reeves to target “public sector net worth” as her debt measure instead.
It’s estimated that using this metric would unlock as much as £57million headroom for investment.
Instead of just evaluating debt, a “public sector net worth” approach delves into the assets at the Government’s disposal, such as public equity stakes and infrastructure, as well as other liabilities such as pension commitments.
The think tank argues that the metric allows for a more detailed understanding of the Government’s financial position.
However, some economists have suggested the Chancellor pick a less broad metric due to the difficulty in valuing some public assets accurately.
According to the Guardian, sources close to the Treasury said Ms Reeves must submit her major measures to the Office of Budget Responsibility (OBR) on Wednesday, which will then use these policies to forecast their impact on the economy and the public finances.
The OBR would then share the findings with Ms Reeves on Monday next week.
Although a decision is required this week, Ms Reeves will not have to submit her final resolution to the OBR until October 25.
Ms Reeves will announce the new Labour Government’s Autumn Budget on Wednesday, October 30.
