However, a narrow focus on debt risks losing sight of the asset side of the public sector balance sheet: when the IMF calculated a measure of net worth – netting total government assets (including both financial and physical assets) and liabilities – the UK was found to have the lowest of twenty-four advanced economies, as shown in the Figure below. Achieving this could help keep future debt interest payments down and could create ‘fiscal space’ so that, if appropriate, debt can be increased again when the next severe adverse shock strikes. While a near-term target for debt risks being too inflexible, there are good reasons to set fiscal policy so that debt will decline as a share of national income over the longer term. Such a target is far from perfect, but it does have many desirable features and a version of it has been recommended in successive IFS Green Budgets.įar harder is setting an appropriate target for debt. Specifically, several – Mr Brown, Mr Osborne prior to 2014, Mr McDonnell, Mr Javid, Mr Sunak and Ms Reeves – have set rules with the desire to raise sufficient revenues to pay for spending that is of benefit now, while being content to borrow to finance spending that delivers future benefits. There appears to be a reasonable amount of consensus across several Chancellors and Shadow Chancellors in many aspects their chosen fiscal targets. With UK Chancellors having announced eleven fiscal targets in the last seven years – most of which were (or would have been) missed, there is no point in rushing to implement another set of poorly designed targets. The Chancellor was right to suspend the current set of fiscal targets during the pandemic, and he is also right to take time to consider what a good set of post-pandemic targets will be.
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