Starmer Advocates for Revising Debt Definition in Fiscal Rules Amid Investor Concerns
Good morning. Next Wednesday, Rachel Reeves, the Chancellor of the Exchequer, will present Labour’s inaugural budget—likely one of the most critical during this parliamentary term. However, modern budget announcements play out over a two-week span; due to previous experiences where sudden surprises rattled financial markets, the Treasury has engaged in elaborate pre-budget discussions to provide subtle previews of what’s expected. Not every rumor circulating this week regarding the budget’s contents is accurate or endorsed by the Treasury, but many will indeed reflect what’s forthcoming.
A significant topic generating considerable media attention is Reeves’ proposal to alter the official debt definition included in government fiscal rules. She has been signaling her intentions for some time now and is expected to formalize these changes at today’s International Monetary Fund (IMF) meeting in Washington.
The current administration aims for a reduction in national debt as a percentage of national income by the fifth year projected under their economic forecast. The former government classified debt as headline public sector net debt (PSND); however, Rishi Sunak redefined it while serving as Chancellor to underlying PSND—this excludes liabilities associated with the Bank of England and remains in use today.
The Institute for Fiscal Studies (IFS) recently issued an insightful analysis on potential alternative definitions that Reeves may adopt. For instance, analysts Larry Elliott, Pippa Crerar, and Richard Partington suggest she might choose public sector net financial liabilities (PSNFL). According to their findings:
- This new benchmark would replace PSND and consider all governmental financial assets and liabilities—including student loans, equity interests in private enterprises, along with funded pension schemes.
- Such a transition could pave the way for increased borrowing aimed at long-term infrastructure investments…
- If Conservative Chancellor Jeremy Hunt had considered a PSNFL target earlier this year, he could have had an additional borrowing capacity amounting to approximately £53 billion.
Keir Starmer is currently attending the Commonwealth Heads of Government Meeting (CHOGM) being held in Samoa. When queried about potential investor trepidations linked with redefining fiscal metrics around national debt during his trip there—Eleni Courea reports he responded:
The Chancellor has been clear about her ambition to drive more investment into our economy through both her speeches at conferences and subsequent statements.
It’s established fact that domestic investors have previously indicated concerns around low levels of investment within both public infrastructure projects and broader business activities across Britain.
Starmer characterized next week’s budget as “unapologetically pro-business,” insisting:
Investors don’t need cause for concern regarding our upcoming plans; this administration is making growth its primary focus—it fully endorses pro-business policies.
You may have noticed significant voting outcomes signaling confidence among investors toward Britain’s economic direction showcased at last week’s international investment summit.
He also expressed that his first budget would significantly establish “how we plan on conducting business moving forward.”
Today’s Itinerary
- 9:30 AM: Cabinet Office Minister Pat McFadden engages with Commons inquiries.
- 11:30 AM: Downing Street hosts its routine press briefing.
- Noon: Angela Rayner addresses attendees at Local Government Association event as Deputy PM & Housing Secretary.
- Afternoon (UK Time): Rachel Reeves participates via media engagements from New York during IMF annual meetings.
.]Also being announced today is legislation focusing on governance within football presented before House Lords.
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