Mark Carney: Ex-Bank governor says fiscal rules must enable greater public investment
Mark Carney said it makes “little sense” for the fiscal rules to exclude the longer term benefits of public investment as he joined calls for the government to ramp up capital spending.
In place of the existing rules, the former Governor of the Bank of England argued that the government needed to adopt a broader measure of the economy’s fiscal health to ensure that investment would not suffer.
“If government money is being spent to build or buy an asset on behalf of the nation, it is only right that its value is captured in the definitions of national debt,” he wrote in the Times.
Carney, who is now chair of Canadian private equity giant Brookfield, argued that the economy had been “starved” of investment due to a fiscal framework which incentivised cuts to capital spending.
The current set of fiscal rules require debt to be on a downward trajectory in five years time, which encourages governments to cut investment spending because the benefits are only felt beyond the five-year forecast horizon.
A number of different fiscal rules are under consideration, but Carney said the important issue was whether the rules “allow long-term infrastructure investment to be appropriately recognised and rewarded”.
It’s time to record the resulting value in national assets alongside national liabilities and to communicate clearly those values to UK citizens and investors.
Ramping up public investment would help the economy to adapt to major structural changes like energy transition and the AI revolution, he argued.
“UK budget rules born of austerity and forged in crisis can starve capital investment when it is needed the most”.
Chancellor Rachel Reeves had previously suggested that she will reform the fiscal rules so that they “take account of the benefits of investment, not just the costs”.
She submitted the first draft of the Budget, including her fiscal rules, to the Office for Budget Responsibility (OBR) on Wednesday.
A recent report from the Institute for Public Policy Research suggested that moving to measure public sector net worth (PSNW) in the fiscal rules could free up £57bn for the Chancellor.
PSNW includes physical assets such as roads and hospitals as well as the government’s financial assets. However, economists at the Institute for Fiscal Studies (IFS) warned that there were difficulties in targeting PSNW because of the challenges in valuing infrastructure.