How Rachel Reeves may have found £25bn behind the back of the sofa

I’ve had a chance to examine the implications for her fiscal rules of the chancellor’s statements in her conference speech, that she would secure growth through increased investment and compel the Treasury to give more weight to the benefits of growth, rather than focusing excessively on the short-term implications for public sector debt.

In simple terms, it suggests she will announce a plan in the October 30 budget to take investment vehicles like the new National Wealth Fund off the public sector balance sheet.

It means public money put into demonstratively productive investment - such as wind farms, transport, grants to businesses and so on - won’t be included in the fiscal rules’ five-year debt target.

I know this sounds tediously technical, but it has a significant economic effect.

It could create £20 billion to £25 billion of “headroom” for the kind of investment that will remain on the public sector balance sheet, such as in new hospitals, schools and assorted public-service AI and tech projects.

So the freed-up billions would help modernise and reform public services.

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But, the fiscal-rules reform won’t and can’t end the significant pressure on day-to-day spending on public-sector wages, welfare and the like, because one of Reeves’s fiscal rules is more constraining than the Tories’ version: she is committed over five years (again) to cover all day-today spending with tax revenues.

Bottom line?

Given what she describes as the black hole she inherited from the Conservative government in day-to-day government spending, she is still going to raise taxes significantly in her looming budget.

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