Chancellor Rachel Reeves has indicated that she will "invest in the foundations of future growth" hinting at a potential increase in public investment in the forthcoming Budget. Speaking in Washington, Reeves is set to discuss how public investment can enhance infrastructure, stimulate innovation in science and technology, and facilitate the energy transition.
"Our upcoming Budget will be a reset for our economy as we invest in the foundations of future growth," she is expected to say at the International Monetary Fund's (IMF) latest annual meeting. These remarks suggest a probable shift in public investment in next week's Budget, as reported by .
Many economists believe that public investment has been insufficient for an extended period, negatively affecting economic growth. The Institute for Public Policy Research (IPPR) reports that public investment as a percentage of GDP has trailed the G7 average annually since the early 1990s.
The fiscal rules, which mandate a reduction in debt within five years, are often blamed for the º£½ÇÊÓƵ's underinvestment as the benefits of investment programmes extend beyond the forecast horizon. Last month, Reeves hinted at reforming the fiscal rules to "take account of the benefits of investment, not just the costs".
While there is a general consensus on increasing public investment, the exact method of reforming the fiscal rules remains a topic of debate.
Several left-leaning think tanks have suggested that the value of physical assets owned by the government, such as roads, schools and hospitals, could be included in public sector net worth (PSNW). This could potentially free up nearly £60bn for additional investment.
However, Alison Ring, director of public sector and taxation at the ICAEW, has questioned whether PSNW would provide a solid foundation for a fiscal target. "It is crucial that the Chancellor proceeds with caution, as moving too quickly to a net worth measure could see markets question the government's commitment to put the public finances on a sustainable footing," she said.
The Institute of Fiscal Studies (IFS) has also highlighted the challenges of measuring the value of physical assets. Changes to PSNW reveal "little about the government's ability to access capital markets or service its debt," researchers at the think tank noted.
The Chancellor will confirm the details of the fiscal rules at the Budget, but she will emphasise in Washington that her policies will be "built on the rock of economic stability".
