Conservatives, Labour pledge fiscal rules change

Chancellor Sajid Javid and Shadow Chancellor John McDonnell have both pledged to change fiscal rules to fund capital spending.

Javid has announced the Conservatives will use historic low borrowing rates to fund a "decade of renewal" as it was a responsible time to invest. He added, following a recent IMF meeting, that this is a growing consensus around the world.

The first fiscal rule planned is a balanced current budget. 

In the party's manifesto and in its first Budget "in the New Year" plans are to be announced to level up the "entire United Kingdom, from Manchester to Midlothian".

"We will borrow some more to invest", he added.

The second rule will see investment in "long-term projects like roads and rail not exceed 3% of GDP. 

"Compared to the long-time average of 1.8% that represents a huge stepchange in what we currently invest, it means billions of pounds more to spend on the infrastructure revolution that this country needs. 

"As we set out our plans it will mean debt, will be lower in the medium term.”

The third rule announced is if borrowing costs rise "significantly in the future and what we are paying to service the debt exceeds historical averages we would reassess how much we would be willing to borrow for capital projects".

Speaking in Manchester, Javid said "anyone who knows economics knows that public and private goes hand in hand, they are mutually reinforcing". He added: "Conservatives understand that it is a dynamic free market economy that is the single best way to fund those public services."  

John McDonnell has pledged that services returned to public ownership by Labour will be counted among the UK’s government assets that are targeted under new fiscal rules that the party will introduce. Speaking in Liverpool, McDonnell said Labour will reset the fiscal rules so that assets such as rail, energy, water and mail, are considered, along with other public sector assets on the nation’s overall financial balance sheet.

The Shadow Chancellor said the shake-up would ensure that the public assets created by the National Transformation Fund investment were “recognised both as a cost and as a benefit”.

“Our fiscal rule for the next Parliament will exclude borrowing for investment from our borrowing targets. 

“It will mandate us to deliver an improvement in the overall balance sheet by the end of the Parliament.

“So that when we invest in the infrastructure our country desperately needs it’s recognised both as a cost and as a benefit.

“Yes – adding to the government’s debt, but also adding to the government’s assets and strengthening our public sector to deal with the future.”

McDonnell added: “With the rents on our new council homes and the electricity produced by our public sector energy agencies set against the cost of servicing the debt issued to build them. On this at least there’s nothing radical, just common sense.”

Labour’s new fiscal rule is based on research and proposals by Richard Hughes, former Head of Fiscal at HM Treasury, in a recent paper for Resolution Foundation.

Meanwhile, the Liberal Democrats plans to tackle the climate emergency by generating 80% of electricity from renewables by 2030 and insulating all low-income homes by 2025. It announced: "As one of the party’s key priorities, a Liberal Democrat government will raise the energy efficiency standards for new homes, as well as investing GBP15bn over the next Parliament to retrofit 26 million homes."

Earlier this week the Liberal Democrats announced it would "stop Brexit and use the GBP50bn Remain Bonus to invest in public services and tackle inequality”.