Mark Carney Advocates for Fiscal Rule Reform to Include National Assets

Mark Carney, the former governor of the Bank of England, has voiced his support for Labour’s proposed adjustment to how national debt is gauged, suggesting that incorporating national assets could invigorate the economy, which he describes as “starved” of investment.

In a notable endorsement of Rachel Reeves’s potential approach to increasing “public sector net wealth” in her upcoming budget scheduled for October 30, Carney articulated that it is illogical to disregard state assets when establishing fiscal parameters.

In an article for The Times, he stated, “If government funds are being utilized to create or acquire an asset for the country, it is logical to include its value in the national debt calculations.”

He emphasized that the discussions surrounding updated fiscal guidelines are both timely and necessary, arguing that neglecting national assets in the national debt equation is unwarranted, especially considering initiatives like the National Wealth Fund, which aims to enhance national assets.

As the chairman of Brookfield Asset Management, one of the largest private investment firms globally, Carney encouraged businesses and global investors to support this adjustment, provided that Labour ensures “appropriate transparency and rigorous discipline” to distinguish between productive long-term investments and current expenditures.

This statement from the former Bank governor follows the chancellor’s submission of her initial budget draft to the Office for Budget Responsibility (OBR).

Reeves has expressed a desire to focus on capital expenditure, advocating for long-term investments to avoid the “mistakes” made by the last Conservative administration, which reduced public spending to adhere to fiscal guidelines. Carney noted, “The UK economy has long endured chronic under-investment.”

The current fiscal rules compel the chancellor to lower the public debt-to-GDP ratio by the fifth year of the OBR’s projections. Labour is exploring an alternative approach that emphasizes an increase in “public sector net wealth,” which includes both state-held debt and assets, such as the new £7.3 billion National Wealth Fund’s infrastructure investments.

Transitioning to a public sector net wealth framework could provide Reeves with an additional £59 billion in fiscal flexibility, potentially allocated for long-term investments, as per the Institute for Public Policy Research. Lord O’Neill of Gatley, former chairman of Goldman Sachs, remarked that adjusting the debt measures could facilitate increased investment and enhance fiscal transparency.

Carney, who has advised Reeves on the National Wealth Fund, asserted, “UK budget rules, formed amid austerity, can hinder necessary capital investment during critical times. Global investors seek a balance between maintaining discipline over debt and deficits while fostering an environment for growth and investment.”

He noted that multiple alternative debt measurement methods are currently being discussed, each presenting unique advantages and disadvantages. Nonetheless, he emphasized that the primary objective is to ensure that new rules allow for the appropriate recognition and rewarding of long-term infrastructure investments, rather than being the first area to experience cuts during economic downturns.

“It is time to acknowledge the value of national assets alongside national liabilities and communicate these values transparently to UK citizens and investors,” Carney concluded.

While the International Monetary Fund and the Organisation for Economic Co-operation and Development have supported governments prioritizing net wealth to foster and sustain investment, the potential modification has faced critique from the Institute for Fiscal Studies. Paul Johnson, its director, cautioned against the complexities involved in accurately assessing the value of assets like roads and infrastructure.