Rachel Reeves, the shadow chancellor, is poised to unveil new fiscal rules aimed at bringing greater stability to policymaking under a Labour government. In her upcoming Mais lecture in the City of London, Reeves will outline these rules, which prioritize borrowing for investment while ensuring that the current budget moves into balance to cover day-to-day costs with revenues.
Under these proposed rules, Labour would commit to adhering to Rishi Sunak’s fiscal mandate, which stipulates that overall public debt should decrease as a share of the economy by the fifth year of the official forecast. Despite criticisms from economists, Reeves defends this target, arguing that it provides flexibility to respond to future crises.
The announcement is part of Labour’s effort to position itself as a party of fiscal discipline and counter Conservative accusations that they would raise taxes to fund increased spending if elected. Reeves emphasizes that Labour will maintain strong fiscal rules and protect the UK’s economic institutions.
Labour’s fiscal plan aims to prioritize investment within a framework that ultimately reduces debt as a share of GDP over the medium term. Unlike the current government’s focus on the overall budget deficit, Labour’s approach targets day-to-day spending, avoiding the incentive to cut investment to meet deficit targets.
Additionally, Reeves will introduce measures to enhance transparency and accountability in fiscal policy. This includes requiring the Office for Budget Responsibility (OBR) to assess the long-term impact of investment measures on growth and presenting a comprehensive view of public sector assets and liabilities during fiscal events.
Furthermore, Labour commits to retaining the Bank of England’s 2 per cent inflation target, signaling their commitment to maintaining macroeconomic stability and reassuring the City about their economic stewardship.
Overall, Rachel Reeves’ proposed fiscal rules aim to instill confidence in Labour’s economic management while ensuring responsible borrowing for investment and prudent fiscal management to achieve long-term economic stability.
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