Fiscal Rules

With your permission, Madam Deputy Speaker, I would like to make a statement to the House about the action the Chancellor will take this week to fix the foundations and rebuild Britain.

Economic growth and modern public services can only be built on strong foundations. That is why this Government have brought political and economic stability back to Britain. After years of chaos from the Conservative party—chaos that cost families, businesses and public services dear—the British people are now rightly looking to this new Labour Government to clear up the mess from the last Government, fix the foundations and rebuild Britain. That is the change that my party promised the country, and it is the change that we will deliver.

To deliver that change, the fiscal rules that the Chancellor will set out this week will establish the basis for stable fiscal policy, meaning careful management of day-to-day spending and responsible long-term plans to invest and grow the economy.

As we committed to in our manifesto, the Government will have two robust fiscal rules that will guide the decisions we take. The first is our stability rule: we will pay for all day-to-day spending on public services from receipts. The current budget was last in surplus under the last Labour Government, and this Labour Government will return the public finances to that position.[Official Report, 13 May 2025; Vol. 767, c. 4WC.] (Correction) The second is our investment rule, which will get debt falling as a proportion of our economy. It will ensure that we can secure the investment that our economy needs to grow, and to generate jobs and opportunities for people across the United Kingdom of Great Britain and Northern Ireland, while maintaining a strong fiscal anchor and ensuring that our debt burden falls over time.

The plans that we inherited from the last Government would have seen public sector investment decline to the lowest level in more than 10 years. The path of declining investment is the path of a declining nation, and we refuse to follow it. Instead, we will seize the huge opportunities of the future to support the enterprise and talent that this country creates.

The Government recognise that sustained public investment is a crucial driver of long-term economic growth, giving the private sector the confidence to invest too, but our ambitions for public sector investment must be balanced against the need to maintain debt on a sustainable trajectory and ensure that we invest every pound of taxpayers’ money responsibly. That is why I will deliver a 10-year national infrastructure strategy next spring, working with colleagues across Government, the nations and regions, and with our mayors and the private sector, to set out a robust long-term strategy for sound investment. That is also why our new approach to overlapping multi-year spending reviews will improve the way that we allocate and spend capital, and why the Chancellor of the Duchy of Lancaster and I will lead the new national infrastructure and service transformation authority, which will drive better delivery of major projects and infrastructure across the country. In addition, there will be the work of the new office for value for money and the National Audit Office. Those robust guardrails will ensure that our capital spending is value for money, and that our financial investments deliver a positive return for the Exchequer.

Finally, the Chancellor has been listening to the views of institutions such as the International Monetary Fund, and to expert economists. As she has set out, that is why the Treasury has been reviewing the right measure of debt to target in the fiscal rules ahead of the upcoming Budget. The details of that policy will be announced to the House in the Chancellor’s statement on Wednesday, alongside an economic and fiscal forecast produced by the independent Office for Budget Responsibility. In the usual way, the fiscal rules will be published in a draft charter for budget responsibility, on which Members will vote in due course. I commend this statement to the House.

I call the shadow Exchequer Secretary to the Treasury.

I wondered whether the Chancellor’s announcement of changes to the fiscal rules would survive the weekend, given the five fictitious freeports that came and went. It was a cautionary tale about the uncertainty and confusion that can be created when policy is not announced in the proper way in Parliament. I welcome the delayed statement by the Chief Secretary to the Treasury, and I am grateful for advance sight of it.

Making a £50-billion announcement at an overseas conference, and not at a fiscal event in this House, has understandably and notably moved markets, creating further uncertainty for an already nervous business community. Although the Chancellor announced change last week, she did not provide any details about what that change would be—a common approach by Labour that is now coming back to bite them as the realities of government set in. The Prime Minister has admitted as much in recent days, speaking of the need to “embrace…fiscal reality” by adopting measures that were never listed in Labour’s manifesto. In fact, the Chancellor explicitly said before the election that she would not change the fiscal rules because that would be “to fiddle the figures”. By going ahead with this latest U-turn and broken promise, she has compromised trust and credibility ahead of her first Budget.

That joins the long list of promises already broken by the Labour Government in such a short time: the promise to cut energy bills by £300—broken; the promise that their manifesto was fully costed—broken; the promise to be on the side of pensioners—so obviously broken; and we know that their promise not to raise taxes on working people is about to be broken, too. Try as they might to sell a different story, just like Government bonds right now, people ain’t buying it.

We are left in the ludicrous position in which the UK—the sixth-largest economy in the world—does not have an operative definition of public debt. Quite understandably, markets have responded to this latest uncertainty by applying a premium to UK sovereign debt at a time when they have been discounting the sovereign debt of our international peers. The markets are also perplexed as to why these changes were announced without an accompanying OBR report. In the words of the Chancellor,

I am very fond of the hon. Gentleman, but he has some brass neck to stand up in this House and tell this Government how to behave after his party’s maladministration over the last 14 years. May I politely point out that he might be getting slightly ahead of himself? The Chancellor has not set out the detail of the fiscal rules in advance of the Budget; she will do it in this House, in the Budget on Wednesday, and I encourage him to wait for that information. He painted a picture of the country performing so well under his party’s leadership, but he may want to reflect on why he lost the last election so badly.

As Chair of the Treasury Committee, which has responsibility for scrutinising the Budget, I find the timing of this statement a bit frustrating, as we will have questions that presumably cannot be answered until Wednesday. Will the Chief Secretary explain how the guardrails will work? There is the national infrastructure and service transformation authority, the office for value for money and the National Audit Office. What role will each play in reassuring the markets, so that an autumn “sniffle”—that is PSNFL, or public sector net financial liabilities—does not become a winter cold?

I know that the Chancellor looks forward to giving evidence to the Treasury Committee following the Budget in the normal way. To answer the question, the national infrastructure strategy will, for the first time, bring together all the infrastructure and major project asks of Whitehall Departments into one place alongside the economic infrastructure assessments. This will inform the multi-year spending reviews, which will now overlap, so that when an election comes up, we do not again end up with a Government making no spending plans whatsoever, or announcing a load of projects when there is no money to pay for them. We are confident that this better approach to allocating capital will mean that investment under this Government will improve the productivity of our public services and the growth of our economy, and mean a better return for British taxpayers across the country.

I call the Liberal Democrat spokesperson.

Under the Conservatives, the fiscal rules changed five times in seven years, so a change to fiscal rules is not that unusual in and of itself. However, does the Minister agree that what would be completely unforgivable is a repeat of the Conservatives’ disastrous mini-Budget, in which they tried to pursue £40 billion of unfunded tax cuts, and which left a long shadow on our public finances? Will he assure us that any additional borrowing that the Government seek will only be for productive investment that will generate growth and fix our crumbling hospitals and schools?

I thank the hon. Lady for her question and share her continued anger about the behaviour of the last Conservative Government, because as she and the whole House will know, our constituents are still paying the price of that Government’s chaos and failure. That is why the first Act of this Labour Government— the first Act that I took through this House—was the Budget Responsibility Act 2024, which locked in the power of the Office for Budget Responsibility to hold this Government and future Governments to account. If we ever again ended up in a position where Conservative Ministers decided to ignore independent checks and balances, the OBR would be able to report its view to this House independently, so that Parliament could hold that future Government to account. I end by pointing to our first fiscal rule, which is that we will pay for day-to-day spending with receipts. Again, that means that we will not end up in the situation that we were in under the last Government, when month after month, borrowing just paid the bills for which they did not put money aside.

Fiscal rules are a tool for responsibility, and we should all welcome rules that help us to act responsibly and invest responsibly. The rules and the accounting definitions that underlie them are not matters of faith, preordained by the Almighty and passed to us on stone tablets; they are there to help us make responsible decisions. Does my right hon. Friend agree with me, and with the former chief economist of the Bank of England, the OECD, the International Monetary Fund and George Osborne’s former Treasury Minister, that we should welcome changes to the fiscal rules that promote investment?

I will avoid the suggestion that we might go back to putting things on stone tablets if I may, but I will accept the invitation in my hon. Friend’s question, and say that after 14 years, we have seen the failure of the approach taken by the last Government. I noted in my statement that public sector investment would now have been at its lowest in 10 years, under the plans of the now Opposition. That has been a failure for the economy and for the British people, and this Government will rectify it.

Before the election, the Chancellor said that she would not change the measure of debt in order to borrow more, but now she is talking about doing exactly that. Before the election, she said that she would not increase national insurance, but now she is talking about doing exactly that. Before the election, Labour steered people away from the idea that the Government would cut the winter fuel payment, but they have already done exactly that. They said, before the election, that they would not increase taxes on working people, but now they are planning to do exactly that. Does the Minister understand why so many of my constituents feel that they were misled?

The hon. Member’s constituents will note at the Budget on Wednesday that this party honours its promises—the promises, set out in its manifesto, to protect working people. He might want to reflect on the way that his party failed his constituents at the last election before trying to lecture this Government.

I welcome measures that allow for more long-term investment to improve our economic performance and public services, but I would like my right hon. Friend to address two issues. Is housing one of the areas where more investment might be allowed, to help us achieve our target of 1.5 million more homes in this Parliament? Secondly, will he ensure that where there is public investment, we try to make that investment produce orders for UK companies, rather than many of the orders going abroad? That is the way to create real growth in our economy.

We made a commitment to delivering 1.5 million homes, and we will do just that. On the second part of the question, the whole purpose of the national infrastructure strategy and the overlapping multi-year spending reviews is to give investors and suppliers confidence that when the Government say something will be delivered, it will, so they can invest and plan on that basis, to help improve the British economy. Frankly, they are starting from a position of complete dismay because of the failed promises of the last Government; we will rectify that.

If we could stick with the here and now, what the Chancellor announced caused the bond markets to move almost immediately by almost 0.5%. That means that interest rates will stay higher for longer. Will the right hon. Gentleman confirm that that will cause hardship to today’s mortgage payers and tomorrow’s generation of taxpayers, because they will have to repay this extra debt?

What I can confirm is that what affected interest rates and mortgage payments so severely was the chaotic behaviour of the hon. Gentleman’s party in government before the last election. That is why we have had to legislate to make sure that if they ever returned to Government, they could not behave in similar ways. We are taking a responsible approach to public spending, as I have set out today, and we will never return to the activities of his party in government.