This loosening in part reflects statistical reclassifications (bringing the cost of student loans onto the books) which have increased the deficit relative to the level recorded at the Spring Statement. Consider, for instance, that we were already running a current budget balance last year, yet the new rule would stipulate that this need only be re-achieved in three years’ time. The proposed current budget rule represents a modest loosening on the previous approach. It has echoes of the old falling debt rule, but is in fact nothing of the sort – as we will return to.
This is not quite as tough as it is meant to sound like. Javid argued that such a set of rules would mean that debt would end the next parliament lower than it started. A 6 per cent of tax revenues trigger for debt interest costs (of a kind we’ve called for) beyond which government must reassess its borrowing plans with the goal of ensuring debt does not rise.A 3 per cent of GDP limit to net investment and,.excluding capital spending) in three years’ time (and implicitly remain in balance) In their place the Conservatives want to introduce three new, looser, targets: A falling debt-to-GDP ratio from next year (and implicitly in future years).Īll these targets are now gone – and indeed on course to be broken.zero borrowing) in the middle of the 2020s and,
But the change is much more modest than we are seeing on investment. On day-to-day spending, the two parties have set out plans that are looser in the short term than those inherited from Philip Hammond. The big picture here is both parties setting out plans to borrow for investment – both on a significant scale, but particularly sizeable in Labour’s case. Today they are resetting their fiscal rules for that reality – and in both cases drawing on recent Resolution Foundation work to do so. Today, both main parties have set out their own new fiscal rules – and the fact that they are both new tells you a lot: the turning of the political and economic cycles means parties are now competing on how to increase spending and borrowing plans, rather than on how to reduce them. They play a vital role in shaping a new government’s tax and spending plans and give a big picture sense of a party’s approach to economic policy.
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