What is the opposite of a mini-Budget? A maxi-Budget? Whatever it is, that is what the chancellor is preparing to deliver next Wednesday. But the biggest difference between Rachel Reeves and Kwasi Kwarteng is not substance per se. Indeed, Reeves also intends to borrow more in order to boost growth, albeit through capital investment rather than tax cuts.
Instead, it is in temperament and strategy. Unlike Kwarteng and Liz Truss, who unsettled the markets by refusing to allow the Office for Budget Responsibility to provide economic forecasts their first fiscal event, and then doubled-down on unfunded tax cuts, Reeves has gone to great lengths to signpost her plans. Or, in civil service speak, to roll the pitch for higher borrowing.
Yesterday evening, writing in the Financial Times, the chancellor confirmed plans to alter the Treasury's fiscal rules in such a way to unlock an additional £20 billion a year of investment through extra borrowing. She would do this by including government assets in the UK's measure of debt, and adopting a measurement called 'public sector net financial liabilities'. Consequently, Reeves will be able to borrow more and still say that debt is falling over the forecast period.
This change is a very big deal for a few reasons. In the immediate term, it means that Reeves does not need to consider cutting public investment in order to fund day-to-day spending, as George Osborne did in the early 2010s, to fairly disastrous effect. In the longer-term, it might correct the UK's persistently below average investment levels, which has left us with fewer goodies such as affordable housing and hospital buildings.
Yet it is important to reiterate that this extra money is categorically not for day-to-day spending, i.e. doctors and teachers, which must be funded out of tax receipts. It is only for the kind of capital projects and investments that are supposed to boost growth and productivity. This is the 'good' kind of borrowing the International Monetary Fund is always going on about. But this also exemplifies the government's primary political challenge.
Take the analysis published today by the Nuffield Trust. It finds that the NHS in England is heading for an unfunded overspend of £4.8bn this financial year, and that the chancellor must uplift its departmental budget by at least 3.6 per cent just for the NHS to “stand still”.
If Reeves chooses to fund this (and it difficult to see how she avoids doing so), she cannot simply dip into the extra borrowing magically unlocked. Only higher taxes (though not on "working people") and spending restraint elsewhere (though not *there* or *there*) can do that. And it is improvements to services such as the NHS that voters will ultimately judge Labour in five years' time, not the percentage of GDP spent on investment, as important for long run growth as that is.
Because, as John Maynard Keynes almost once said, in the long run, we're all on an NHS waiting list.
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