Rachel Reeves is hoping to make more than £50bn available to invest in the UK at next month’s budget by changing how the government measures debt in the fiscal rules.
Senior government sources have told The Times that Reeves has asked officials to draw up options for allowing the government to offset assets against national debt, allowing more money to be invested in the economy.
This could include counting the £236bn owed in student loans as an asset, as well as the government’s stake in banks like Natwest.
Reeves herself seems to support changing the rules, telling a fringe meeting at Labour’s conference this week that it was “important that we count the benefits of public investment and not just the costs of it”.
“Other countries look at assets as well as liabilities, and we’re looking at all of those things,” she said.
The move would allow lump sum investment in the economy, such as Labour’s new £7bn national wealth fund and the £8bn cost of the new Great British Energy.
However, it could not be used to increase day to day spending, such as reinstating winter fuel payments, as Reeves had stated that this must be met through annual tax receipts rather than borrowing.
This move could free up more than £50bn to invest in the economy, economists told The Times.
Lindsay James, investment strategist at Quilter Investors, noted that the fiscal rules have been changed six times in nine years, so this move would not be unusual.
However, she said with UK debt to GDP now at 100 per cent, “bond investors are unsurprisingly likely to be rather sensitive as to how the UK government calculates its own spending ability”.
“Whilst effective investment is vital to renewing UK economic growth, how it is defined, shaped and ultimately paid for will remain crucial,” she added.
Neil Wilson, chief market analyst at Finalto, described the fiscal rules as “kinda stupid”, as even if Reeves did go ahead with plans to exclude investment in the economy from balancing the budget, “Labour are still hamstrung to bring down net debt as a share of GDP between years four and five of the forecasts”.
Under the government’s current rules, national debt has fall as a percentage of GDP over the next five years.