Nick Macpherson, a senior figure in the Treasury during both Labour and Tory administrations, has cautioned against excessive fixation on fiscal rules by the Labour Party.
He also questioned the necessity of abandoning the £28 billion green investment pledge. In an interview on The Power Test podcast, Macpherson expressed views on Rachel Reeves’ economic strategy, fiscal policies, and the total economic outlook under Labour.
UK Treasury Chief (Credits: Global Government)
Macpherson praised Rachel Reeves’ long-term economic strategy, stating it would resonate positively with the Treasury. He suggested that Labour might need to borrow more for investment, provided the focus remains on crucial areas and the investment plans are effectively implemented.
Macpherson acknowledged Labour’s cautious approach, attributing it to the need for maneuverability and credibility with financial markets, which he emphasized as crucial in the present-day political landscape.
The former Treasury official highlighted the potential impact of Labour’s stability on financial markets, noting that markets favor stability over continuous political upheavals.
He indicated that the perceived stability offered by Labour leaders Keir Starmer and Rachel Reeves contrasts with the frequent resignations and leadership challenges other political parties face.
UK Treasury Chief (Credits: The Guardian)
Regarding Labour’s economic strategy, Macpherson praised the emphasis on growth and the long-term framework proposed by Rachel Reeves. He noted that the focus on sustainable growth is aligned with what the Treasury advises, emphasizing the need for continuity and consistency in economic policies to foster growth effectively.
However, Macpherson questioned Labour’s decision to abandon the £28 billion green investment commitment, suggesting that it may have been unnecessary given the relatively modest amount in the context of GDP. He attributed this cautious move to uncertainties in the current global environment.
Highlighting the Need for a Comprehensive Economic Strategy
Macpherson cautioned against being overly fixated on fiscal rules, arguing that such rules often lead to impractical decisions. He stressed the importance of substantive plans and credible projections for spending and taxation, highlighting the need for a comprehensive economic strategy rather than rigid adherence to fiscal rules.
Macpherson hinted at a potentially better economic outlook than predicted by entities like the Office for Budget Responsibility (OBR), expressing optimism about the economy. He mentioned factors such as rising real wages, possible interest rate reductions, and increased economic activity contributing to higher revenues.
Macpherson suggested that Labour may consider tax increases consistent with broader commitments, avoiding sudden hikes in National Insurance and income tax rates. He highlighted the importance of balanced fiscal policies that support economic growth while maintaining fiscal discipline.
