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Budget 2021 | PwC comment on new fiscal rules

27/10/21

Jonathan Gillham, chief economist, PwC says

"Today the Chancellor has announced a new set of fiscal rules that are designed to give the Government flexibility to respond to future economic shocks. They specifically allow the automatic stabilisers that reduce corporate and personal income tax payments to operate over a 1-2 year time period in times of economic uncertainty. He was also clear that the rules can also be suspended in the case of extreme economic problems."

"The new rules state that public sector net debt (excluding the Bank of England) as a percentage of GDP must be falling by the third year of the rolling forecast period. A further three supplementary targets were announced: firstly, the current budget should be balanced by the third year of the rolling forecast period; secondly public sector net investment should not exceed 3% of GDP on average over the rolling forecast period and finally, a target to ensure that expenditure on welfare is contained within a predetermined cap and margin set by the Treasury."

"The key principle underpinning these supplementary targets is that the state should only borrow to invest and the Chancellor was clear that everyday spending must be paid for through taxation. The rolling forecast period allows for future economic growth forecasts to be downgraded and for taxes to be cut and spending to increase in the first half of the 5 year forecast period to deal with crises, public service backlogs etc."

Ends

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