By: Mike Denham, former chairman of the TaxPayers' Alliance
The chancellor recently told the BBC that she will be changing the debt rules to rely on a different measure of debt, public sector net financial liabilities rather than public sector net debt. This has been done to allow the government to borrow even more money, although she said it will “give markets confidence" and the government would be “putting in guard rails” to “ensure that we deliver value-for-money”.
But is it a good idea or, as the IFS recently claimed, “a long walk for a small sandwich”?
Their report has a useful illustration highlighting what’s included in the various measures of debt, which we’ve reproduced below.
Other points have been made in the media over recent days, too. Such as that a PSNFL rule could potentially open the door to massive extra capital spending. And although Reeves is apparently "only" going to dip in for £20 billion (annually) who knows where it might end up.
Also, the rule seems open to all manner of fiddling - eg if HMG borrows to lend, then money PNFL is not affected, and the lending does not count as public spending - it's all below the line, like student loans. But such scams are unlikely to impress the vigilantes. Whatever HMG's target, they'll stay focused on debt and taxable capacity - ie the willingness of poor schmuck taxpayers to service an ever increasing debt burden.
As you can see in the Market Watch chart above, gilt yields have been rising over the last month, by 31 basis points (0.31 percentage points) from 4.01 per cent on 30 September to 4.32 per cent at the close of trading yesterday. We'll see how they like today’s package soon enough.
Another line from the IFS worth drawing out, too, is “Bringing more of the economy into the public sector might well increase public sector net worth (at least in the short term). But that does not in itself make it a desirable outcome.”
Well, quite. Given how much higher British levels of tax and spend are relative to the consensus of the growth-optimising levels we reviewed in our paper on the subject earlier this year, we can be pretty confident that any increase is likely to be economically damaging.
Something else we’ll have to wait and see this afternoon to find out if the chancellor really is as keen on kick-starting growth as she seems to want us to believe.