Chancellor confirms fiscal rules change for more investment but won’t rule out spending cuts
The Chancellor told ITV News she is not taking a gamble with the economy by changing government financial rules to allow more borrowing, as ITV News Business and Economics Editor Joel Hills reports
The Chancellor has confirmed that she will be making changes to current fiscal rules in order to boost investment, but has refused to rule out spending cuts.
Rachel Reeves said that in the Budget next week she would set out two fiscal rules that the government will stick to. The first will be "the most binding, and that is, that we’ll pay for day to day spending through tax receipts".
"I can confirm today our second rule, our investment rule, will change the way we measure government debt so we take into account assets not just the costs of investment," Reeves said on Thursday.
"That is really important to do what the IMF has said governments should be doing," she added, referring to recent warnings by the International Monetary Fund (IMF) that the UK government's finances cannot be sustained without either cuts to the scope of the welfare state or increases in taxes.
What are the fiscal rules?
Fiscal rules are restrictions on fiscal policy set by the government to provide a framework for its own decisions on spending and taxes.
The government currently has three main fiscal rules:
Debt should be on course to fall as a share of national income in five years’ time;
Public sector borrowing should not exceed 3% of GDP in five years’ time;
Some types of welfare spending must remain below a pre-specified cap.
Having committed to take action in line with the IMF's recommendations, Reeves refused to rule out spending cuts to some departments.
"I'll set out the detail in the spending settlements for next year in the Budget next week. There won't be a return to austerity, but there will be difficult choices," she said.
Changes to taxation are possibly the most anticipated part of the Chancellor's Budget on October 30.
In their manifesto, Labour said they would not "raise taxes on working people", but comments from the IMF - and Keir Starmer's warnings of a "painful" Budget - have left people wondering whether the new government will have to break that pledge.
Reeves said on Thursday that Labour "will stick to those promises in the Budget".
"Trust in politics is at an all-time low, and a lot of that is because promises are made and then they're ditched. I don't want to be a chancellor like that, we don't want to be a government like that and so the commitments that we made in our manifesto, including on tax - the ordinary working people would not see increases in the National Insurance, income tax or VAT."
The original commitment has also raised questions as to the exact definition of "working people".
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When asked to clarify the term, Reeves said a working person "is somebody who goes to work to earn their income".
"The specific changes, the specific promises that we made in our manifesto were not to increase those taxes on working people, specifically income tax, National Insurance and VAT. And we'll stick by those promises in the budget," she said.
You can watch ITV News' special Budget Day coverage on October 30 on ITV1 and ITVX.
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