No more 'treasury brain': Rachel Reeves signals new economic era in conference speech

24 September 2024, 13:07 | Updated: 24 September 2024, 14:18

It’s time we had a grown up conversation about the fiscal rules.

For those who don’t know, the fiscal rules are the government’s self imposed restrictions on its spending and tax decisions. They take into account the amount of public spending, tax income, public debt, and the size of the economy.

But, the current fiscal rules aren't fit for purpose and have resulted in ‘Treasury brain’: a way of thinking that commits to propping up the private sector and reducing public debt through arbitrary fiscal rules (which have changed six times in the past ten years).

Successive governments have argued that they aren’t able to invest because of these fiscal rules, and this has had huge costs for ordinary people and the UK economy itself. Britain has one of the worst levels of income inequality in the developed world, with just under one in three children living in poverty, the lowest levels of investment in the G7, and it is failing on its climate commitments.

Public services have reached breaking point. It is clear to anyone paying attention that something has to change.

That’s why so many economists like me breathed a sigh of relief when the Chancellor said yesterday that it's "Time the Treasury moved on from just counting the costs of investment in our economy to recognising the benefits too."

A key test to this new approach would be the new National Wealth Fund, which presents an opportunity for Labour to establish a long-lasting, legacy institution whilst also meeting Rachel Reeves' pledge to make Britain a "clean energy superpower."

It's been rumoured that the new National Wealth Fund’s debts will be excluded from the government's fiscal rules, which would free it to deliver the public investment the UK desperately needs, especially if it is given the power to raise its own money - like other public development banks.

Assuming the Chancellor will follow through on her commitment to shift the debt rule so it captures the benefits of investment rather than just the costs, the next challenge will be to ensure that the ability to invest is directed towards a real mission rather than ‘growth’ for growth’s sake.

Recent research has shown that aiming for GDP growth will not be enough to reduce poverty levels. It will also not ensure that the economic policy is geared towards a just transition to a greener society.

The Chancellor laid out an important step forward yesterday to creating an economy that works for us all. This must be just the start of shifting the UK economy towards tackling inequality, funding our public services properly, and addressing the climate crisis.

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Fran Boait is the director of campaign group Positive Money, which works with economists, academics, journalists, policy makers and the public to bring about a fairer economical system.

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