Chancellor Reeves Hints at Potential Debt Measure Adjustment
In a recent trip to New York and Toronto, Chancellor Rachel Reeves hinted at the possibility of altering a key measure of the UK's debt. This move could potentially free up £17 billion for her upcoming autumn budget.
While reaffirming her commitment to fiscal discipline, Reeves indicated that she would clarify her fiscal rules in her maiden budget. This has sparked speculation that the government might adjust its debt-to-GDP ratio to exclude losses from the Bank of England's bond-buying program.
Excluding these losses could provide significant fiscal headroom, especially considering the £45 billion transferred to the Bank of England last year to cover these losses. However, Reeves emphasized that her fiscal rules are "non-negotiable" and that the target of reducing the debt-to-GDP ratio within a five-year period remains unchanged.
This potential adjustment comes as the government seeks ways to meet debt targets without increasing income tax, VAT, or national insurance. This is particularly important given the £22 billion funding gap identified in this year's inherited spending plans.
Analysts and investors have largely agreed that the market would not penalize the government for such a change, even though it would only provide a one-off benefit to fiscal calculations. The impact of changing the debt measure is expected to be temporary and fade within the Office for Budget Responsibility's five-year horizon.
Reeves' trip to New York and Toronto is part of a charm offensive ahead of Labour's international investment summit in October. During her visit, she will meet with business leaders and investors on Wall Street and with Mark Carney, former governor of the Bank of England.