Jeremy Hunt, who is now shadow chancellor and who did Rachel Reeves’s job until the general election, says her decision to change the definition of debt used in the fiscal rules will “punish families with mortgages”. He posed this on social media.
The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer – and punish families with mortgages. What’s even more remarkable is that the Chancellor hasn’t seen fit to announce this major change to the fiscal rules to parliament. The markets are watching.
In interviews today, Rachel Reeves, the chancellor, has said that although she is changing the fiscal rules to allow more investment, she will put “guardrails” in place to stop money being wasted. She told Sky News:
We will measure debt differently but of course we’ll put guardrails in place to ensure that every pound of taxpayers’ money spent is spent wisely, and we’ll involve the National Audit Office and the Office for Budget Responsibility in that.
According to YouGov, Keir Starmer’s appoval ratings are worse than any other recent prime minister’s at this stage during their premiership.
Struggling councils will no longer be required to pay a “punitive” premium on financial bailouts, Angela Rayner has announced in a speech vowing to get local government “back on its feet”. As PA Media reports, the deputy PM likened the fee, which was a condition for local authorities seeking emergency support under the previous Tory government, to a “payday loan” charge. PA says:
A total of 18 councils were given an injection of money from the government in February to ensure they could meet their legal duty to balance their books in 2024-25.
Bailouts through this exceptional financial support (EFS) framework are usually provided in the form of a “capitalisation direction”, which permits authorities to use capital funds raised through borrowing, or the sale of assets such as buildings, to fund day-to-day services.
Previously, they have been charged an additional one percentage point premium on the interest rate, above the rate to which the loan would otherwise be subject, if they draw down on the borrowing.
Addressing the Local Government Association on Thursday, Rayner, criticised the previous Conservative administration for leaving councils “stuck in a doom loop” with “money pouring out of a system with too many cracks”.
The cabinet minister, who also serves as local government secretary, said: “It’s going to be a long, hard slog to get local government back on its feet. And in the short term we’re doing all that we can to protect severely struggling councils, which is why I’ve announced we are scrapping the punitive, payday loan premium on borrowing for councils in need of exceptional financial support.”
One of the problems with Rachel Reeves choosing PSNFL as the new definition of debt for the fiscal rules is that people can’t agree how to pronounce it.
Robert Peston, the ITV political editor, is adamant that you pronounce it SNFL, or snuffle, as if the p were silent. He says:
There is an important battle taking place about whether the “p” in “PSNFL” is silent or spoken. I say “snuffle”. If you say “persnuffle” you are wrong and you have lost my respect
But Cara Pacitti, an economist at the Resolution Foundation, says you do pronounce the p.
Fiscal nerds pronounce PSNFL as ‘P-snuffle’, which would make this one of the oddest sounding fiscal rules we’ve had for a while!
Jeremy Hunt, who is now shadow chancellor and who did Rachel Reeves’s job until the general election, says her decision to change the definition of debt used in the fiscal rules will “punish families with mortgages”. He posed this on social media.
The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer – and punish families with mortgages. What’s even more remarkable is that the Chancellor hasn’t seen fit to announce this major change to the fiscal rules to parliament. The markets are watching.
Here is Phillip Inman’s story about Rachel Reeves confirming that she is changing the definition of debt she is using in her fiscal rules.
Rachel Reeves, the chancellor, has now confirmed that she is changing the debt definition in her fiscal rules. She has made this explicit in interviews with broadcasters that have just been released.
Speaking to Sky News, Reeves said:
The second [fiscal] rule will be the investment rule, which means to get debt down as a share of GDP. But I can confirm today that which will be measuring debt differently. I will set the details to the House of Commons at the budget next week.
The reason we’re doing that is because there are massive opportunities to invest in return, to get the growth and the jobs of the future here for the UK. And I’m determined to do that. But it’s not possible under current rules.
So I’m listening to what the IMF has been saying, but also UK economists like Gus O’Donnell [the former cabinet secretary] and Andy Haldane [the former Bank of England chief economist] and Jim O’Neill [the former Goldman Sachs chief economist, and a former Treasury minister in David Cameron’s government] who are all saying you need to free up money for investment. So I can confirm that we will be measuring debt differently.
Reeves did not say what the new debt definition would be. But the Guardian has revealed she will target public sector net financial liabilities (PSNFL). See 9.01am.
Earlier Reeves published an article in the Financial Times in which she explained her fiscal rules in detail and said her debt rules, which she calls her “investment rule”, would “make space for increased investment”. But in that article she did not formally confirm the definition of debt used in the rule would change. (See 2.38pm.)
The Conservative party says Rachel Reeves’s decision to change the definition of debt in her fiscal rules will put up the cost of borrowing. In a statement issued by CCHQ, Gareth Davies, a shadow Treasury minister, said:
Before the election Rachel Reeves promised that she would not ‘fiddle’ the fiscal rules, and now it seems she is going to do exactly that. Remarkably she is announcing this not to parliament, but to the IMF in advance of the budget.
This is already having real world effects, with borrowing costs rising. This uncertainty over additional borrowing risks interest rates staying higher and for longer. It’s families up and down the country who would pay the price.
The Liberal Democrats are saying that any extra investment available because of Rachel Reeves’s decision to change the definition of debt in her fiscal rules should go to the NHS. In a statement Daisy Cooper, the Lib Dem Treasury spokesperson, said:
The chancellor must invest any extra borrowing wisely and that should start by fixing the previous Conservative government’s legacy of crumbling hospitals and GP practices that plague our communities.
Crumbling hospital roofs, creaking ventilation systems, and lift-shafts on life support pose a danger to patient safety and are demoralising for frontline NHS staff.
And George Osborne, the former Tory chancellor, has told the Political Currency podcast he co-hosts with Ed Balls that he is voting for Kemi Badenoch, not Robert Jenrick, in the Conservative leadership contest because Jenrick’s proposal to leave the European convention on human rights is a red line for him. He says:
I started the campaign thinking that Robert Jenrick was going to win. But he underperformed at the conference, and I can’t get round this promise to leave the European convention on human rights.
For me, that is a red line; this is just a really impossible thing for Britain to do. A Conservative party that said it was going to withdraw from the European Convention Human Rights, I could not vote for. It’s breaking the rule of law that we’ve helped establish around the world, it’s something that Conservative governments did so much to establish.
I’m just fed up with the Conservative party wanting to leave things and break up international alliances. I want to hear about the Conservatives building things and forming international alliances.
I just can’t get around the Jenrick promise, and therefore, I’ve come around to saying I will vote for Kemi Badenoch. I’ve ticked the box and I’m about to post it after this podcast.
Ed Balls, the Labour former shadow chancellor, has said Keir Starmer and Rachel Reeves have not done enough yet to persuade people they have a plan to stimulate growth.
Before the election Keir Starmer said that securing the highest sustained growth in the G7 would be one of his five missions for government.
But, in his Political Currency podcast, which he co-hosts with George Osborne, the Tory former chancellor, Balls said the new government has not properly explained how this might happen. He said:
They haven’t done enough to explain to us why growth has been so weak over 10,15, 20 years – so that we understand why what they’re going to do is going to turn things around.
It’s not enough to say to business, or to the markets or to the population, ‘we’re not the Tories’ – because nobody thinks it was simply the Conservatives, by being Conservatives, which led to low growth.
[The question is] do they really have a plan on transport infrastructure investment? What is the plan for driving regional growth? How is innovation going to work?
We’ve seen some things around the green agenda, which is good, but they’ve been cutting back – not just public investment, but the national wealth fund investments into those areas. How strategic is it actually going to be? Are they going to choose the areas where they can really have a big impact?
They haven’t done enough yet to persuade us there really is a growth plan.
Balls also said that, although British activists have been going to the US to campaign in elections for years, it was “naive and gauche” to a Labour figure to seem to be organising an effort like this for the 2024 presidential election. He explained:
These kinds of visits have been happening for decades but this is a different election. You would think people would have known from 2020 how delicate this is. Both Keir Starmer and David Lammy had been going out of their way to say they would work with Trump …
When you start organising a sort of a posse of campaigners as a foreign party, now a foreign government, an alarm bell should have rung, and there will be people kicking themselves, thinking ‘I saw that and I didn’t do anything.’
If you’re in opposition for years, you get used to the idea that nobody cares that much what you do, and when you’re in government, suddenly it changes overnight.
They won’t make this mistake again, but it’s definitely a mistake, and somebody should have spotted it earlier.
Balls was a lead figure in Labour politics for two decades, but now he works as a TV presenter and podcaster. He is married to Yvette Cooper, the home secretary.
Rachel Reeves, the chancellor, has published an article for the Financial Times about the new version of the fiscal rules she will unveil in the budget. While she is not confirming that she will move to the PSNFL measure of debt (see 9.01am), she hints at this by saying that her investment rule “will make space for increased investment in the fabric of our economy”.
This is what she says in the article about her rules.
My fiscal rules will do two things. The first and most important: my stability rule will mean that day-to-day spending will be matched by revenues.
Given the state of the public finances and the need to invest in our public services, this rule will bite hardest. Alongside tough decisions on spending and welfare, that means taxes will need to rise to ensure this rule is met. I will always protect working people when I make these choices, while taking a balanced approach.
Crucially, my stability rule will also cover the interest on our national debt and unlike the previous government I won’t cut capital budgets to make up for shortfalls in the day-to-day running costs of departments.
My second fiscal rule, the investment rule, will get debt falling as a proportion of our economy. That will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.
We will invest alongside business, through expert bodies like the National Wealth Fund, multiplying the impact of public money. And I will invest wisely — we won’t just increase investment, we will also invest differently. We won’t repeat the costly mistakes of the past.
My colleague Graeme Wearden has more on this on his business live blog.
In a post on Bluesky, Jo Michell, an economics professor and chair of the Post-Keynesian Economics Society, says he approves of the new debt definition chosen by Rachel Reeves.
So it looks like PSNFL. Of the options on the table I think this is the best:
1. Status quo PSND ex BoE. Obvs not good.
2. Revert to straight PSND. Banter option but little more.
3. PSNW. A potential mess of accounting and politics.
4. PSNFL. Substantial room for investment, avoids downsides of 3.
Harriet Harman, the former Labour deputy leader, has accused Keir Starmer of failing to understand why other Commonwealth leaders are so keen on having a full debate about having a reparatory justice for slavery.
While No 10 has indicated that it is open to some discussion on this issue (see 12.32pm), Downing Street said before the Chogm summit that Starmer would not be offering reparations or an apology when he met his fellow Commonwealth leaders. Speaking to reports on his flight to Samoa, Starmer said he was more interested in “looking forward rather than looking backwards”.
Speaking on Sky News’ Electoral Dysfunction podcast, Harman said Starmer did not appreciate why this was a live issue for so many country, and she said the PM should “lean in to a sense of cultural respect and equality”.
She explained:
I think that reparative justice is not about the past.
Of course it’s about what happened in the past, but it’s about relationships in the future and what those relationships are based on.
And therefore, I think to say ‘that’s all in the past, let’s look to the future’ feels like a misunderstanding of what they’re actually saying.
Harman said trying to argue that this was just a historic matter would not work. “[Starmer] needs to be in this conversation rather than be ruling it out,” she said.
The UK government’s borrowing costs have risen on global financial markets amid expectations that Rachel Reeves will change Britain’s debt rules to unlock up to £50bn of additional headroom for investment in infrastructure, Richard Partington reports. He says:
The yield – in effect the interest rate – on UK government bonds rose by about six points to trade above 4.2% in early trading on Thursday morning before easing, contrasting with a fall in borrowing costs for other comparable countries, including the US. The spread between gilts and German debt rose to the highest in more than a year, according to Bloomberg.
“It seems to be related to Reeves last night suggesting that the fiscal rules would be rewritten to increase spending on infrastructure,” Lyn Graham-Taylor, a senior rates strategist at Rabobank, told Reuters.
Here is the full story.