Labour warned against using financial ‘jiggery-pokery’ to ‘find’ £16 billion for upcoming budget
The Institute for Fiscal Studies has said while a move to change some economic definitions may help the Government spend more without raising taxes, they do not change the underlying financial realities.
During the election campaign, and since, Labour has described its fiscal rules as ‘non-negotiable’.
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Hide AdThese include a commitment to achieve current budget balance – to cover all day-to-day spending with tax revenues, borrowing only to invest – and a commitment to have debt falling as a share of the economy in five years’ time.


This in itself has been criticised from some at different ends of the spectrum who argue it is unlikely to allow capacity for infrastructure investment which they see as a prerequisite for meaningful economic growth.
However the IFS has pointed out that the precise technical details of these fiscal rules – such as which measure of debt will be used – are yet to be spelled out.
While somewhat arcane, these details could make a considerable difference to the degree of so-called ‘fiscal headroom’ against those rules this autumn.
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Hide AdFor instance, the IFS says switching to the ‘headline’ measure of public sector net debt (PSND) rather than the measure of ‘underlying’ debt (PSND ex Bank of England) used by the previous government would have added £16 billion to measured ‘headroom’ in March 2024.
Moving the fiscal goalposts in this way – as reports suggest that the Chancellor is considering – might allow for billions of additional borrowing while continuing to meet the letter of the rules.
Given the many demands for additional public spending, and her promises not to raise income tax, National Insurance or VAT, this could be the path of least resistance for the new Chancellor.
In a report issued today, the IDS said: “The principled case for a switch to targeting headline PSND is weak.
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Hide Ad“Other changes to the debt measure (for example stripping out valuation losses on gilts held by the Bank of England) could be attempted.
“Technical changes to definitions do not change the fiscal reality: whatever the measure of debt, additional borrowing is additional borrowing.”
“Ultimately, if the government wants to borrow more and spend more, especially on public investment, then it would ideally make the case for doing so on its own terms, rather than hide behind fiscal jiggery-pokery.”
Ben Zaranko, Senior Research Economist at IFS and an author of the comment, said: “Tweaking the definition of debt, to allow for additional borrowing without breaching the letter of the fiscal rules, may well be an attractive option for the new Chancellor.
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Hide Ad“Such a change would be fairly modest and might be sufficiently far into the fiscal weeds to avoid any sort of adverse reaction from financial markets.
“But additional borrowing is still additional borrowing.
“If the government wants to borrow and invest more, there is a coherent and principled case to be made for doing so.
“Ideally, we would hear that case and debate its merits, rather than get bogged down in technical debt definitions and an unhelpful discussion about so-called fiscal headroom.”
When asked about the issue, Rachel Reeves said: “We publish the precise details of the fiscal rules of the Budget. But the fiscal rules are non-negotiable.
“We'll get debt down as a share of GDP. And crucially, we will balance tax receipts with day to day, spending.
“But we'll set out the precise detail of that at the time of the Budget.”
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