June 23, 2024 10:00 am
In the March Budget, the debt rule left the Government with only £8.9bn of “fiscal headroom” – the amount by which it can increase spending or cut taxes, according to the OBR.last week that “if you want lower taxes and good public services – as both parties do – you have to explain how to live within the current very tight fiscal envelope”.
If the Labour party could change the debt target to be based on the overall total, including the Bank of England’s debt, Mr Smith said it would give them more fiscal headroom.
Changing this could give Labour an extra £20bn for spending or tax cuts, according to Oxford Economics, where Mr Saunders is now a senior adviser.“This spillover from quantitative tightening to fiscal policy is accidental but means that quantitative tightening is significantly dampening the economy via its effect on fiscal policy.
The proposal, which he initially outlined in a paper co-authored with Richard Hughes before he became OBR chair, would factor in the positive value of assets created by investment, such as railways, wind farms, roads and infrastructure. "We have a poor record in terms of how much investment we do relative to other countries, but it also creates all sorts of problems," he said.
"That's the spending that is the best for growth – the best for getting the return from your government spending," he told"It therefore leads to situations where growth is down and you have to spend more in the future fixing things because you don't have the infrastructure for it. Then-chancellor Gordon Brown introduced a rule to borrow only to invest and have day-to-day spending covered by revenues – similar to what Ms Reeves has proposed.