The chancellor told the cabinet on Tuesday she wanted to change how the Treasury accounted for capital spending to reflect its benefits, as allies say she intends to finalise her debt rule in the coming days…reports Asian Lite News
Rachel Reeves is pushing ahead with plans to borrow billions of pounds extra for infrastructure investment, the Guardian has learned, despite concerns about the rising cost of UK government debt.
The chancellor told the cabinet on Tuesday she wanted to change how the Treasury accounted for capital spending to reflect its benefits, as allies say she intends to finalise her debt rule in the coming days. The move, which will be confirmed to the Office for Budget Responsibility (OBR) as soon as Wednesday, will allow the government to borrow tens of billions more for capital spending over the course of this parliament.
Whitehall sources say she is committed to the plan despite a recent rise in the government’s borrowing costs, which some market experts have blamed on the prospect of higher debt but which others say is more connected to the US economy. Reeves briefed cabinet colleagues on Tuesday about her budget and the one-year spending review that will be announced at the same time.
Downing Street said afterwards: “One of the first steps of this government is to restore economic stability, and the budget will absolutely deliver on that.” A No 10 spokesperson said this would mean “delivering on the robust fiscal rules that were set out in the manifesto … that includes debt falling as a share of the economy”.
However, others briefed on the meeting said the chancellor had stressed the importance of capital spending for the economy, in a sign that she still intends to change the debt rule. Labour committed in its manifesto to balancing day-to-day expenditure with tax receipts, and getting debt falling as a share of the economy in the fifth year of forecasts.
Reeves is believed to be exploring using an alternative debt metric to the one used in the rule she inherited from her Conservative predecessor, Jeremy Hunt. One option for Reeves is to change the debt measurement to account for the value of the assets the government holds, such as roads, schools and hospitals. Measuring the net worth or the net financial liabilities held by the government could give the chancellor room to borrow as much as £50bn more than currently planned, although some officials worry it would spark a bond market sell-off, with the Treasury left to pick up the bill.
Reeves has talked privately about taking the less radical option of keeping the debt rule in place but excluding losses from the Bank of England from the debt calculation, as well as any extra borrowing used to set up public institutions such as the national wealth fund, The Guardian reported. This would free up a more modest amount of between £10bn and £20bn and would be less likely to trigger a sharp rise in borrowing costs and interest rates.
The chancellor will on Wednesday send the first draft of her main budget measures to the OBR for officials to draw up their first forecast for how they will affect the public finances.