It’s welcome to read reports that chancellor Rachel Reeves’ new fiscal rule will replace the way gross government debt is measured as a proportion of gross domestic product. The new debt concept being mooted is one that nets off from gross debt selected assets on the government balance sheet. This should loosen the government’s fiscal straitjacket (Opinion, October 12).
However, I am alarmed by indications that these assets would be confined to financial balance sheet components.
It would be a grave mistake to exclude saleable land on the government’s balance sheet when netting off from gross debt. Such an exclusion would critically handicap the implementation of better land value capture, strongly signalled in the Labour election manifesto, and have a crucial impact on whether the government is able to achieve its ambitious housebuilding targets.
One precondition for better land value capture is the repeal of the 1961 Land Compensation Act. The other is a new fiscal rule. Public authorities should be able to borrow to buy land at prices below those that would apply to land that had planning permission. After obtaining planning permission, some of this land could be used for building social housing more cheaply than is currently possible. Some would be sold off to private developers and the profit used to fund infrastructure. Overall, with land included in the assets netted off, net government debt would fall, and housebuilding and growth rise, even though gross debt increases.
Professor John Muellbauer, Nuffield College and Institute for New Economic Thinking, University of Oxford, Oxfordshire, UK
Published in the Financial Times on 26 October 2024.