Javid Allows Borrowing for Investment in Revamp of U.K. Rules

(Bloomberg) --

Chancellor Sajid Javid announced a re-writing of Britain’s fiscal rules that would allow a re-elected Tory government room to borrow for increased investment.

The new rules commit the government to balancing the day-to-day budget and limiting investment to 3% of gross domestic product, Javid said in his first speech of the general election campaign Thursday. Debt, he promised, would be lower at the end of the next parliament than it was at the start.

The announcement ends months of speculation over what would replace the current fiscal rules, which require borrowing to be less than 2% of GDP in 2020-21. Javid will almost certainly breach that ceiling after announcing an extra 13.4 billion pounds ($17.2 billion) of spending on public services in September.

Javid said low interest rates, which he expects to continue, mean it is now a responsible time to invest. Historically, Britain has spent around 1.8% on infrastructure, he said, so in practical terms the new ceiling allows an extra 20 billion pounds or so for investment.

The extra spending was needed to deliver a decade of renewal, he said, though investment plans would be reassessed, however, if debt-servicing costs rise significantly.

The new framework draws battle lines with the opposition Labour Party as campaigning for the Dec. 12 general election gets under way. In a separate speech, Shadow Chancellor John McDonnell announced Labour would more than double the extra capital spending it has promised to 55 billion pounds a year in its first term and increase borrowing to pay for it.

Javid cast the election as a choice between responsible investment under the Conservatives and out-of-control spending under Labour.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Lucy Meakin

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