Budget 2024 fiscal rules: What is Reeves changing – and why does it matter?

The Chancellor Rachel Reeves has signalled Labour’s first Budget next week will loosen the UK government’s self-imposed fiscal rules, in a bid to free up extra cash for investment.

She wrote in The Financial Times that Labour’s revised “investment rule” will “make space” for more investment compared to the Tories’ previous plans.

The tweak to how government defines its debts is hugely significant, as it will reportedly allow Reeves around £20bn more borrowing to fund long-term investment “in the fabric of the economy” – while still fulfilling a major election pledge to get debt down as a proportion of Britain’s economy.

READ MORE: Labour’s Budget 2024: What policies could Rachel Reeves announce?

It marks a notable bet by the typically cautious Chancellor that changing the rules – which largely exist to reassure the markets about the sustainability of public spending –  can be done without frightening investors into making borrowing costs unaffordable.

It also contrasts with Labour’s pledge to fund day-to-day spending only through revenues like taxes.

Reeves said the government will invest “wisely” and “differently”, avoiding the mistakes of past governments and instead “multiplying the impact of public money” through bodies like Labour’s National Wealth Fund.

The detail of the rule change is that the government is now expected to use a definition of debt known as ‘public sector net financial liabilities’, rather than ‘public sector net debt’.

The change broadens what is counted as government assets and debts – but helps the Treasury’s balance sheets as it adds more assets than debt, and debt is currently falling faster on the new measure, according to experts.

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