In the News Teaching Activity – will the Chancellor relax fiscal rules to invest? (Oct 2024)

Speculation about what the new Chancellor will include in her first budget has been increasing.

Expectations that Chancellor Rachel Reeves plans to change the fiscal rules on debt are increasing. This would allow the UK to borrow billions more for infrastructure investment despite rising government debt costs. Reeves seeks to revise how capital spending is accounted for, emphasising long-term benefits. Potential adjustments include changing debt measurements or excluding Bank of England losses, which could free up £10-50 billion. Despite concerns about market reactions and conflicting short-term capital cuts, Reeves is pushing ahead, with tax changes also being considered to support spending plans. The government promised not to increase income tax, VAT & employee NICS, somewhat limiting its ability to find revenue-raising tax changes.

Reeves to press ahead with plans to borrow billions for investment | Economic policy | The Guardian

1. Distinguish between current and capital spending by the government.

2. Analyse the likely impact on the UK economy of an increase in infrastructure investment by the government.

3. Discuss why relaxing the fiscal debt rules to allow more government borrowing to invest may not always boost the economy.