Economy

Rachel Reeves hints at debt-to-GDP measure change to unlock £17bn for budget

Chancellor Rachel Reeves has left open the possibility of altering a key measure of the UK’s debt, a move that could potentially release £17 billion for her upcoming autumn budget.

During a trip to New York and Toronto, Reeves indicated she would clarify her fiscal rules in her maiden budget, amidst speculation that the government might adjust its debt-to-GDP ratio to exclude losses from the Bank of England’s bond-buying programme.

Reeves, affirming her commitment to the Labour government’s fiscal discipline, confirmed that the target of reducing the debt-to-GDP ratio within a rolling five-year period remains unchanged. However, excluding the Bank’s quantitative easing losses from this measure could provide significant fiscal headroom. Last year, the Treasury had to transfer £45 billion to the Bank of England to cover these losses.

“We’ll get debt down as a share of GDP. And crucially we will balance tax receipts with day-to-day spending. But we’ll set out the precise details of that at the time of the budget,” Reeves stated, emphasizing that her fiscal rules are “non-negotiable.”

This potential adjustment comes as the government seeks ways to meet debt targets without increasing income tax, VAT, or national insurance, especially after Reeves revealed a £22 billion funding gap in this year’s inherited spending plans.

Analysts and investors have largely agreed that the market would not penalise the government for such a change, even though it would only provide a one-off benefit to fiscal calculations. Michael Saunders, a former Bank of England rate-setter, noted that the impact of changing the debt measure would be “temporary and will fade … perhaps just after the Office for Budget Responsibility’s five-year horizon”.

Reeves is in New York for meetings with Robert Vince, head of BNY Mellon, and will meet US business leaders and investors on Wall Street on Tuesday as part of a charm offensive before Labour’s international investment summit in October. She will also meet Mark Carney, former governor of the Bank of England, in Toronto on Wednesday.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

Your daily news source covering investing ideas, market stocks, business, retirement tips from Wall St. to Silicon Valley.

Disclaimer:

GroovyTrades.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice.
The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2024 GroovyTrades. All Rights Reserved.

To Top