Britain’s Labour opposition plans to adopt “net worth” as a fiscal rule after the Office for National Statistics added the measure to its list of official data points this week, according to a party official.
(Bloomberg) — Britain’s Labour opposition plans to adopt “net worth” as a fiscal rule after the Office for National Statistics added the measure to its list of official data points this week, according to a party official.
A commitment to balance what government owns against what it owes reflects Labour leader Keir Starmer’s determination to establish economic credibility ahead of an election that is likely to be held next year. The UK public sector is currently around £600 billion ($750 billion) in deficit on a net worth basis.
Rachel Reeves, the shadow chancellor, is keeping a tight rein on spending promises to neutralize Tory claims that a Labour government would lose control of the public finances.
Labour, which has a double-digit lead over the Conservatives in opinion polls, has historically been portrayed by the Tories as the party of high spending and borrowing.
The party has a loose fiscal framework at the moment under which all day-to-day spending will be met by taxes but it can borrow to invest as long as debt is falling as a share of GDP. The rules are slightly less demanding than the government’s, which has the same debt commitment as Labour but a hard borrowing limit of 3% of GDP.
National Balance Sheet
A net worth rule would take a snapshot of the government’s whole balance sheet – from public sector pension liabilities on one side to power plants and financial investments on the other – in much the same way as a company reports its accounts.
Labour claims the current focus on just the debt, while ignoring the assets, has led to short-termist mismanagement of the public finances under the Conservatives. Privatizations and asset sales may reduce the debt but have left the government with one of the largest net worth deficits of all Organization for Economic Cooperation and Development members.
Labour hopes a full balance sheet rule might also reframe the debate around its plans to borrow to invest in green infrastructure.
The party has pledged to spend £28 billion a year tackling climate change, which includes creating an £8 billion national wealth fund and a state-owned clean energy company, GB Energy, to invest in renewable power.
Labour’s fiscal framework currently states that it will “take greater account of public sector assets as well as debt.” The ONS’s new monthly “public sector net worth” estimate now provides an official means of doing so.
The ONS’s first estimate this week revealed a net deficit in March of £606 billion, excluding public sector banks. Richard Hughes, chair of the Office for Budget Responsibility, was an advocate of using net worth as a fiscal rule before taking over at the government’s spending watchdog in 2020.
Grant Fitzner, chief economist at the ONS, said net worth “provides a fuller picture of long-term fiscal sustainability” that can be used alongside existing fiscal rules “allowing for a more complete presentation of public sector finance statistics.”
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