The UK’s falling debt to GDP fiscal rule is a rule to suppress public investment

Let me start by apologising to any regular readers of this blog. None of the arguments in this post are particularly new. But with a new PM and possibly a new Chancellor, and with Andy Burnham committed to high public investment including many more council houses, it seems appropriate to make this argument once again in as clear a way as I can. The UK has for some time had two fiscal rules. One targets some measure of the future deficit as a ratio of GDP and the other requires debt to GDP to be falling. The second rule is about the change in debt, but the first rule is about the deficit which is the change in debt. So why do we need two rules which essentially target the same thing? [1] Here are the variables relevant to the two current fiscal rules since 2000. The red line, the ‘golden rule’ that targets the current balance, shows the impact of the two recent recessions quite clearly. As I have long argued, fiscal rules should be abandoned during recessions and the subsequent…