Andy Burnham urged to use flexibility in fiscal rules to boost investment

{"text":[[{"start":8.8,"text":"Andy Burnham has scope to increase investment in infrastructure without breaking the UK government’s fiscal rules by being bolder in exploiting flexibility created by chancellor Rachel Reeves, according to forthcoming research."}],[{"start":22.450000000000003,"text":"The Labour leader, due to take over as prime minister on Monday, could mobilise an extra £16bn for infrastructure over the coming five years thanks to extra latitude resulting from a 2024 change in the definition of public debt, says the Resolution Foundation think-tank in an upcoming report seen by the FT."}],[{"start":41.900000000000006,"text":"This could ultimately match the support lost because of Britain’s withdrawal from the Luxembourg-based European Investment Bank resulting from Brexit, it adds. "}],[{"start":50.900000000000006,"text":"“This seems like an open goal,” said Ruth Curtice, chief executive of the influential think-tank, whose former head, Torsten Bell, is now a Treasury minister. “The demand is there.” "}],[{"start":null,"text":"

"}],[{"start":62.050000000000004,"text":"Burnham has vowed to boost “decent infrastructure” in all parts of the UK as part of plans for “good growth in every British postcode”. "}],[{"start":70.15,"text":"Lord Jim O’Neill, an adviser to Burnham and former Treasury minister, has argued there is capacity for higher public investment without unsettling the government debt markets, as he pushes for new projects that garner strong returns and boost the economy. "}],[{"start":84.30000000000001,"text":"But Burnham, who has insisted he will stick to the existing fiscal rules, will inherit a fragile set of public finances at a time when bond markets are on guard given earlier signs that the Makerfield MP wants to loosen policy. "}],[{"start":98.80000000000001,"text":"The IMF last week warned the incoming PM not to boost public spending, but rather to commit to existing plans to clamp down on government borrowing. "}],[{"start":108.35000000000001,"text":"The Office for Budget Responsibility watchdog warned in a report this month that the public finances were in a “challenging position relative to history and to other similar countries”, following one of the biggest increases in public debt as a share of GDP of any advanced economy over the past two decades. "}],[{"start":126.75,"text":"In its research, the RF argued that the government has scope to be more aggressive in exploiting the financing capacity of a group of public financial institutions (PuFins). "}],[{"start":136.3,"text":"The PuFins include the National Wealth Fund as well as the British Business Bank, UK Export Finance and the National Housing Bank. "}],[{"start":144.9,"text":"In 2024 Reeves switched the main fiscal rule — which requires her to match day-to-day spending with tax revenue by the end of the parliament — to a measure that excludes borrowing for investment. "}],[{"start":156.4,"text":"She also changed the definition of debt in her second fiscal rule — which requires her to bring public debt down as a share of GDP by the end of the parliament — to a metric known as public sector net financial liabilities (PSNFL). This measure offsets certain financial assets such as loans and equity against debt created by the government, making it easier to boost government investment."}],[{"start":179.75,"text":"When PuFins make a loan or buy a stake in a company, it does not increase PSNFL, meaning the extra borrowing does not endanger the government’s fiscal target. However, the Treasury has set itself rules when determining how much extra borrowing to amass using this extra flexibility as it seeks to reassure the bond markets it will not be irresponsible."}],[{"start":200.6,"text":"The report argues that the Treasury has the capacity to further exploit the financing capacity locked within the PuFins, however. The first step should be to boost the firepower of the NWF, which focuses on sectors such as power transmission, ports, reservoirs and battery technology."}],[{"start":217.35,"text":"The Treasury should expand its capacity to match the 0.27 per cent of GDP that the European Investment Bank invested in Britain pre-2016, the report says. This would increase the NWF’s investments by a cumulative £15.6bn in real terms over half a decade. "}],[{"start":235.54999999999998,"text":"It would still entail extra government borrowing which would increase debt interest payments — counting against the first fiscal rule requiring the government to balance its current budget. The extra debt would entail around £400mn in annual debt interest after three years, says the report, but it adds that this ignores returns from the assets acquired and should not lead to a breach in the rules. "}],[{"start":257.95,"text":"In a statement, the NWF said: “We have already committed over £10bn and mobilised a further £19bn into capital-intensive infrastructure, supply chains and businesses across the UK — addressing market weaknesses and taking meaningful risk to support economic growth.” "}],[{"start":277.2,"text":"There is scope to boost the capacity of the other PuFins as well, said Curtice, pointing to the NHB, which makes low-cost loans to housing associations. Burnham has made an increase in lower-cost housing one of his goals as prime minister."}],[{"start":291.8,"text":"Curtice cautioned that there were constraints on how quickly these institutions can expand their activities. But this avenue is a good way for Burnham to achieve his goal of boosting UK infrastructure, she said. "}],[{"start":303.95,"text":"A Treasury spokesperson said: “This government has more than doubled the firepower of the UK’s public financial institutions to £199bn, putting serious capital behind business investment, infrastructure and growth.”"}],[{"start":326.6,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1784539952_3273.mp3"}