UK fiscal hole could disappear if debts were calculated differently, research shows

© Reuters. UK fiscal hole could disappear if debts were calculated differently, research shows

Proactive Investors - Research by the Progressive Economy Forum (PEF) suggests that the £50bn hole in government finances can be altered massively by changing the way debt is measured.

Economists Dr Jo Michell and Dr Rob Calvert Jump, using Office for Budget Responsibility Forecasts, said changing the way figures were calculated saw the size of the fiscal hole change dramatically.

By slightly altering calculations, more effect could be had on debt than tax hikes and spending cuts, which are expected to be announced in a fiscal statement on 17 November.

PEF outlined that the hole “is the result of government accountancy rules and highly uncertain forecasts, not tax or spending decisions”.

If public sector net debt included Bank of England figures, which were excluded from January 2022, the projected hole in government finances could be closed and the government would be left with an extra £14bn against its own debt targets by 2027, the report found.

There were also negative findings in the research, with small increases in forecast public borrowing and changes in the predicted rate of growth both respectively meaning the government would miss its debt target.

Commenting on the findings, Dr Michell said: "These results show that the government is basing its economic policy on very shaky foundations.

"If the 'hole' disappears with small changes in forecasts or accounting rules, it is not a reliable basis for economic policy changes.”

Read more on Proactive Investors UK

Disclaimer