Javid rips up rules in £300bn in­vest­ment

The Daily Telegraph - Business - - Front Page - By Tim Wal­lace and Rus­sell Lynch

SA­JID JAVID un­veiled a £300bn in­vest­ment spree as he tore up bor­row­ing rules and re­versed decades of Con­ser­va­tive pol­icy with a pledge to re­vamp roads, rail­ways, schools and hos­pi­tals.

The Chan­cel­lor said he will not use debt to fund cur­rent spend­ing, such as ben­e­fits and wages, but will take ad­van­tage of rock-bot­tom in­ter­est rates by bor­row­ing up to 3pc of eco­nomic out­put per year to in­vest.

This is un­prece­dented in re­cent his­tory and marks a dra­matic de­par­ture from the To­ries’ fo­cus on tight re­stric­tions on pub­lic fi­nances. It could re­vive the UK’s ail­ing in­fra­struc­ture, trig­ger a surge in eco­nomic growth and cre­ate thou­sands of jobs – but it trig­gered crit­i­cism of the party’s rep­u­ta­tion for sound fi­nan­cial man­age­ment from fis­cal ex­perts, in­clud­ing for­mer Trea­sury man­darin Lord Macpher­son.

Mean­while, shadow chan­cel­lor John McDon­nell promised an even larger £150bn “so­cial trans­for­ma­tion fund” over five years, on top of £250bn for in­vest­ment in green in­fra­struc­ture over 10 years, and re­na­tion­al­i­sa­tions ex­pected to cost a lot more than £100bn.

This all comes against a gloomy eco­nomic back­drop. The Bank of Eng­land cut its growth fore­casts as the global econ­omy weak­ens and Brexit weighs down do­mes­tic growth.

Mr Javid said: “In­cred­i­bly, at the mo­ment we can bor­row in real terms at neg­a­tive in­ter­est rates, mean­ing it is a re­spon­si­ble time to in­vest. While we must main­tain spend­ing res­traint, if we want growth to con­tinue and get stronger in the fu­ture, we need to in­vest in it, tak­ing the op­por­tu­nity of­fered by those his­tor­i­cally low bor­row­ing rates.”

Cur­rently in­vest­ment plans are ex­pected to cost just more than 2pc of GDP, so Mr Javid’s 3pc would in­crease spend­ing from around £200bn to al­most £300bn over the next four years.

He said debt would still fall as a share of GDP, and an ex­tra rule would cap bor­row­ing if debt in­ter­est pay­ments rose be­yond their his­toric share of GDP. Mr Javid said: “The com­bi­na­tion of th­ese rules means debt will never be al­lowed to get out of con­trol.” Mr McDon­nell said Labour would ex­clude in­vest­ment spend­ing al­to­gether from its fis­cal tar­gets as in­fra­struc­ture and na­tion­alised busi­nesses give the state an as­set along­side its debt.

Bank of Eng­land Gov­er­nor Mark Car­ney hinted the spend­ing com­mit­ments of both main par­ties could push in­ter­est rates higher.

He said: “One of the ad­van­tages of mone­tary pol­icy is that it is much more nim­ble than fis­cal pol­icy and there­fore we can re­spond ac­cord­ingly. There are up­sides and down­side risks in any fore­cast, and one of the up­side risks to this fore­cast would be around fu­ture fis­cal pol­icy … We would take those into ac­count, not as man­i­festos but as ac­tual gov­ern­ment pol­icy.”

The Bank has al­ready es­ti­mated that Mr Javid’s £13.4bn largesse in Septem­ber’s

spend­ing re­view will add 0.4pc to growth next year.

Busi­ness groups and econ­o­mists wel­comed the ex­tra in­vest­ment, but warned against let­ting debt run away.

The an­nounce­ments came af­ter the spend­ing watch­dog was forced to can­cel its planned up­date on pub­lic bor­row­ing be­cause the Cab­i­net Of­fice said civil ser­vants should not pub­lish data so close to an elec­tion.

‘We need to in­vest … tak­ing the op­por­tu­nity of­fered by his­tor­i­cally low rates’

Chan­cel­lor Sa­jid Javid eyes up a £300bn in­vest­ment spree as he un­veils the Con­ser­va­tives’ plans for the econ­omy, in Manch­ester yes­ter­day

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.