Rachel Reeves to rewrite debt rules in bid to free up £50bn in spending

24 October 2024, 18:33

Rachel Reeves will rewrite debt rules in a bid to free up £50bn in spending.

Ms Reeves confirmed on Thursday that she will change the way debt is calculated to take into consideration investment spending.

The Chancellor said her fiscal rules will ensure that debt falls "during the course of this parliament".

It comes after the previous government set "rolling" targets for itself, which only required debt to fall between years four and five.

The move is expected to free up £50billion to help fund long-term spending projects.

Speaking at the annual meeting of the International Monetary Fund (IMF), Ms Reeves said: "I can confirm that we will be changing the way that we measure debt in the budget statement next week.

"We will get debt falling as a share of our economy during this parliament but the changes that we will make to the investment rule will free up money to invest in things that deliver a long-term return for our country and for our taxpayers."

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Strict "guardrails" will ensure additional borrowing is not used to fund "day-to-day spending or on tax giveaways".

Ms Reeves said she would "not be using all the headroom available" and a "substantial" fiscal buffer will be kept in place to keep debt falling within the next five years.

A "stability rule" is also being introduced to balance day-to-day spending with revenue to pay over the course of the parliament.

Changes to the rules will allow the government to spend on investment projects including clean energy and education.

Ms Reeves said that she wanted to reverse the pattern of falling investment spending.

Previous Tory spending plans show that spending is on course to drop from 2.5 per cent of GDP to 1.7 per cent over the next five years.

"If we continued on that path, we would be embracing a path of decline," Ms Reeves said.

"The real debate now in British politics is whether you are on the side of investment or on the side of decline.

"I don’t want to see public sector net investment as a share of our economy decline in a way that is currently set out.

"Under our current fiscal rules, we would not be able to reverse that path."