Caution urged after Murphy calls for end to ‘rigid fiscal rules’
FINANCE Minister Conor Murphy and his Scottish and Welsh counterparts have urged the Chancellor to hand them greater borrowing powers — a move a leading economist says should only be considered “very carefully”.
Alongside Kate Forbes and Rebecca Evans, Mr Murphy yesterday pleaded with Rishi Sunak to end “rigid fiscal rules” and allow them to increase their borrowing levels, ahead of the Chancellor’s summer statement today.
They argue that it will help regions to respond better to the Covid-19 pandemic.
All three finance ministers are calling for the freedom to switch capital funding to day-to-day revenue and put an end to arbitrary limits on borrowing.
Mr Murphy said it is “crucial” that devolved administrations are “equipped to respond swiftly and effectively to the challenges arising from Covid-19”.
“More financial flexibility can help us deal with these challenges and use our budgets to sup£250bn port public services, protect the vulnerable, and deliver an economic recovery,” he added.
Dr Esmond Birnie, a senior economist at Ulster University’s Business School, said that it was important to recognise the task faced by the finance ministers in devolved administrations, as well as Mr Sunak, during the coronavirus crisis.
He said that during the course of 2020/21, total UK public borrowing — the gap between what the UK central government receives in the form of taxes and the amount spent — may be to £300bn compared to the roughly £50bn expected.
That extraordinary level of borrowing was the price paid to keep as much of the economy in cold storage ready to come back after the lockdown, said Mr Birnie. “That all said, rules relating to the behaviour of government have some value and shouldn’t be torn up just because there may be some short term advantage,” he added.
“In particular, rules relating to fiscal policy may have value in establishing the credibility of government in financial markets (hence, in the longer term, reducing the cost of borrowing by government).
“There may be a case to provide some short term easing of the rules relating to borrowing by the UK Government to cover the period of the virus but I think it would be reckless to throw away the rule book once we return to semi-normality.”
He added that Northern Ireland has already been given around £1.3bn since March, as well as the finances for the Job Retention Scheme and income support for the self-employed.