24/10/2024 08:35
The Guardian
PM tries to reassure businesses and investors in UK, while chancellor is in New York for IMF meetingDisposable vapes will be banned from sale in England next summer, the government has confirmed. Emily Dugan has the story.This is what the Institute for Fiscal Studies said in a briefing published last month about changing the defintion of debt used in the government’s debt rule from underlying PSND to PSNFL. (See 9.01am.) The IFS is quite sceptical, and warns that more borrowing could push up interest rates (which is also what the Conservative party says).It is hard to avoid the suspicion that the government is attracted not by any theoretical advantages of a change in the debt rule, but by the fact that it would allow for significantly more borrowing for investment. Here, it is worth pausing to comment on scale. On existing plans, public sector net investment is currently forecast to be £53 billion in 2028–29. Net gilt issuance in 2028–29 is forecast to be £87 billion. Against that, any change that allowed for an extra £50 billion of borrowing for investment would be an enormous shift, even if not all of this extra space were used at once. If even half that figure were spent on additional investment, debt (on the previous target’s measure) could be more than 3% of national income higher by the end of the parliament and would almost certainly still be rising at the end of the forecast period, even accounting for typical feedback effects via a larger economy.Such a large change would also raise questions about the government’s capacity to spend this money well, and about the possible impact on government borrowing costs and interest rates more generally. Previous Treasury modelling suggested that an increase in borrowing of 1% of GDP might increase interest rates by between 50 and 125 basis points, depending on economic conditions. An extra £50 billion of borrowing in 2028–29 (roughly the amount of extra ‘headroom’ provided by a switch to PSNFL) would amount to around 1.6% of GDP. To the extent that the additional investment produced material benefits for the productive potential of the economy, we would expect the impact on interest rates to be smaller. But the point is, additional borrowing on this scale could have a material impact on interest rates. Continue reading...
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