The International Monetary Fund (IMF) has said the UK’s debate on whether to tear up rules on debt and how much the Government can borrow is a welcome one as public investment was “badly needed”.
Vitor Gaspar, Portugal’s former finance chief, who now heads the IMF’s fiscal division, said while it is important countries like the UK bring their debts down it was important to do this in a way that preserves public investment.
“The fact that [this issue] is very much at the centre of the debate in the United Kingdom right now is very much welcome,” he said.
Britain “is living with interest rates that are close to US interest rates, but it is also living with growth rates that are not close to US growth rates,” he said. “Given challenges associated with the energy transition, new technologies, technological innovation and much else, public investment is badly needed.”
The government is under pressure to alter its fiscal guidelines to permit higher levels of public investment by changing the way UK debt is measured.
It is reported the Treasury will target public sector net financial liabilities (PSNFL). This measure, set to replace public sector net debt, takes in a wider account of the government’s financial, assets and liabilities, ranging from its stake in Nat West Bank to student loans.
Using this yardstick, the Chancellor will have greater room for manoeuvre to borrow more for investment in the UK’s increasingly crumbling infrastructure.
The IMF forecasts British government gross debt will keep rising as a share of GDP from 100 per cent in 2023 to 108.3 per cent four years time, one of the biggest in the G7 but below that the IMF forecast for the G7 as a whole.
Photo: Brendan Smialowski / AFP
“We believe it’s very important to bring public debt under control. It’s very important to control for public debt risks,” Gaspar said.
Critics warn such changes will result in greater borrowing and mounting national debt. The Treasury is anxious to avoid a repeat of the chaos that engulfed bond markets in 2022 when former Prime Minister Liz Truss committed to massive, unfunded tax cuts.
His comments will be seen as a further boost to the Chancellor as she delivers a speech to the IMF annual meeting in Washington which stressed the upcoming Budget which will depict a budget as being about investing in growth.
The IMF revised upwards its forecast for UK economic growth earlier this week from 0.7 per cent to 1.1 per cent.
The Treasury said while the IMF’s improved outlook is welcome the Chancellor would make clear to her counterparts that there will be more long-term decisions required to reinforce stability and deliver on the promise of change in her first Budget at the end of this month.
The Chancellor insisted that public investment will drive innovation in science and technology, the transition to clean energy, and upgraded infrastructure.
Ms Reeves said: “A Britain built on the rock of economic stability is a Britain that is a strong and credible international partner. I’ll be in Washington to tell the world that our upcoming Budget will be a reset for our economy as we invest in the foundations of future growth.”
