I can't recall whether the OECD, the Paris-based organisation of advanced economies, was included in Liz Truss'santi-growth coalition. But its chief economist has today urged Rachel Reeves to re-write "short-termist" fiscal rules to facilitate higher public investment and thereby drive growth.
Alvaro Pereira told the Financial Times that the current fiscal rules may lend towards "potential deterioration of the public finances in the long run", and that it had identified the UK's need to "improve infrastructure and improve productivity."
For those at the back, Labour's fiscal rules are as follows:
1. Day-to-day spending must be funded by tax receipts (allowing borrowing for investment)
2. Debt must be falling as a share of the economy by the fifth year of the forecast
In her speech to Labour's annual party conference on Monday, Rachel Reeves intimated that she wasminded to prioritise capital spending in order to bolster the economy, stressing that it was time the Treasury "moved on from just counting the costs of investments, to recognising the benefits too”. Today's OECD report may further embolden such an approach.
In more good news for the chancellor, theOECD also upgraded the UK's growth prospects, from 0.4 per cent to 1.1 per cent in 2024, rising to 1.2 per cent in 2025. For those of a certain vintage, these numbers are a far cry from the years of reliable 2 per cent plus expansions. But it is better than nothing, and firmly places the UK in the middle rather than bottom of the G7 pack. The US economy is, as ever,a spectacular outlier.
None of this is to say that those "difficult choices" cabinet ministers talk about have gone away. We can expect painful cuts to some departments, while the better off are likely to be clobbered by changes to capital gains tax, pensions relief and inheritance tax. Meanwhile, inflation is looking awfully sticky and higher than in other G7 countries.
Still, any additional leeway that protects capital investment will add real-world teeth to Reeves's rhetoric, when she promises to "fix the foundations" and "rebuild Britain". Just, don't expect to feel the benefits for some time.
