Rachel Reeves has been warned she will look ‘opportunistic’ if she rejigs borrowing rules to free up another £50billion for spending and avoid ‘tough choices’.
Ahead of her first Budget next month, the Chancellor has reportedly asked Treasury officials to look at changing how the Government measures debt.
According to The Times, this could allow the Government to offset ‘assets’, such as the £236billion owed in student loans, against the wider national debt.
This would free up more cash for investment and, if those rules had been in place at the last Budget, could have amounted to an extra £50billion, the newspaper said.
But such a rule change would only allow the extra cash to be spent on large-scale projects such as roads, railways, housing and energy infrastructure.
It would not allow Ms Reeves to boost day-to-day spending as Labour has pledged this will be met by tax revenues.
It means the Chancellor won’t be able to use the money to reverse her scrapping of universal winter fuel payments for pensioners.
Nor is it likely to allow Ms Reeves to avoid the tax rises she has signalled will be needed to help tackle a claimed £22billion ‘black hole’ in the public finances or Labour’s ‘dire’ economic inheritance from the Tories.
Rachel Reeves has been warned she will look ‘opportunistic’ if she rejigs borrowing rules to free up another £50billion for spending and avoid ‘tough choices’
Sharon Graham, general secretary of Unite, led a protest against cuts to winter fuel payments at Labour’s conference in Liverpool
A leading think tank today told Labour that making a change to debt rules to boost investment through extra borrowing risked appearing ‘opportunistic’.
The Institute for Fiscal Studies said: ‘There is a risk that the Government is perceived to be making a change not for principled reasons, but for opportunistic ones – to allow for significantly more borrowing for investment without any need for tough choices elsewhere.
‘The Government needs to make its case. It is not enough to justify this change on the grounds that ‘investment is good’.
‘The Government also needs to explain why we should be borrowing to pay for it, rather than prioritising investment within a framework that has debt falling (as Ms Reeves declared was her intention before the election), and why it believes it will be able to keep to a reformed fiscal target in future.
‘Perhaps the most important question for the new Government is how it will ensure that any additional investment funded by that borrowing is – and is widely seen to be – spent well. Not all investment is growth-enhancing.’
Tory shadow chancellor Jeremy Hunt warned that increased Government borrowing would mean a prolonged spell of higher interest rates.
He said: ‘These potential changes amount to a massive U-turn on a central plank of economic policy – and something Labour explicitly ruled out last year.
‘The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer – and punish families with mortgages.
‘That would be a hammer blow for many people just at the moment the Bank of England is expected to bring interest rates back down.’
