The UK needs new rules on taxing and spending in order to adequately tackle the major economic challenges the country looks set to face over the next decade, a new report has said.
Rather than simply focusing on public debt and deficits, a new set of fiscal rules should focus on ensuring the government’s investments are productive and growing in value, said the report from the Resolution Foundation think tank.
UK governments have adopted fiscal targets since Gordon Brown became chancellor in 1997, but they have repeatedly broken them. The current government looks on track to break its rule on the size of the deficit this year thanks to promises of higher spending and accounting changes.
The Resolution Foundation said this shows the time is right “to set a fiscal framework that fits current economic realities”. It added that the scrapping of the planned Budget in early November due to Brexit uncertainty gives chancellor Sajid Javid more time to rewrite the rules.
The report’s main suggestion is a focus on the net worth of the state, meaning how much its assets are worth compared to its liabilities. It says that over a five-year term the government should set targets to increase net worth as a share of GDP.
The think tank said such a focus would better reflect and encompass both main parties’ stated aims to borrow more to invest in the economy.
Richard Hughes, research associate at the Resolution Foundation, said: “The UK’s new fiscal rules should reflect current economic realities such as record low interest rates, and the broad political consensus around the need to invest in improving productivity, tackling climate change, and renewing our public service infrastructure.
“Crucially, they should look beyond our narrow focus on debt and the deficit, and target the wider balance sheet of the state so citizens can see both sides of the borrowing to invest equation.”
“By targeting public sector balance sheet, the government can give the public a much clearer idea of what their taxes and borrowing is buying– be it refurbished hospitals, new infrastructure, or nationalised companies.”
The government has hinted that it could rewrite the current fiscal rules to better suit the present environment.
A HM Treasury spokesperson said: “After nearly 10 years of hard work, the public finances are strong. We now have the space to spend more on public services and, with the record low cost of borrowing, we can invest more in growing our economy.”
(Image credit: Getty)