UK’s Reeves to change debt target to boost public investment

Britain would need a “notable fiscal effort” to stop debt rising overall, but some borrowing for investment could be appropriate, he said.

Government sources said last week that Reeves would need to raise around 40 billion pounds – mostly through higher taxes but also through some spending curbs – to balance day-to-day spending with revenues and allow increased spending on priorities such as healthcare.

If Reeves’ new rule requires debt to fall by the next election due in 2029, that would represent a tighter requirement than current rules based on rolling five-year periods which allow deadlines to be pushed back each year.

Before the election, Reeves had already said that she would change one leg of the fiscal rules which allowed a 3 per centbudget deficit, including investment spending. Instead, she said she would target a balanced budget excluding public investment.

The previous government’s plans envisaged public sector net investment falling to 1.7 per cent of GDP from 2.4 per cent over the next five years.

“If we continued on that path, we would be embracing a path of decline, and it’s not a path that I want for Britain,” Reeves said.

Stopping that decline would cost around 24 billion pounds a year by 2028/29, the Institute for Fiscal Studies think tank has estimated.