Rachel Reeves is considering changes in next month’s budget regarding the government’s fiscal rules to allow for more investment in the UK economy for decarbonization and growth. Reeves stated the need for the Treasury to focus on the benefits of investments rather than just the costs. However, concerns arise due to the high government debt, reaching £2.5tn, with debt running at 100% of GDP.
Possible changes include excluding losses from the Bank of England’s quantitative easing program and redefining debt targets to accommodate green investments. Reeves could target an alternative measure of debt, the public sector net financial liabilities (PSNFL), which considers all financial assets and liabilities. Other potential measures like public sector net worth (PSNW) could also be explored to evaluate non-financial assets alongside financial ones.
While shifting fiscal rules may carry risks, such as market reactions and increased borrowing costs, economists suggest that strategic changes and increased investment could be beneficial. Reeves aims to balance the government’s commitment to public finances with the need for economic growth and sustainable investments.
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