Chasing “stability” by sticking to strict fiscal rules feels extremely out of touch with today’s unpredictable world.
But sticking to those fiscal rules was the basis of Rachel Reeves's most recent spring Statement. She promised that the government would keep borrowing down but one has to wonder whether this is going to be possible in this world of ever increasing market uncertainty?
What’s the Price of This Stability?
Supporters claim fiscal discipline wins trust. Spend carefully, avoid big borrowing, and markets stay calm. Interest rates behave, and the economy gets a boost.
But that only works if the global picture is steady, but now we're in the era of a largely Trump-lead perpetual global shock-system.
The Office for Budget Responsibility itself admits the UK could get hit hard by external shocks.
And global instability won't disappear just because the government keeps its books tidy. If energy prices soar, someone pays. If the state refuses to borrow more, that cost simply lands on households and businesses.
Then There’s Growth—Or Lack of It
Another big flaw in Rachel Reeve's plan is that growth remains sluggish, widely forecast to be crawling at 1.5% a year, while taxes could rise past 38% of GDP by the end of the decade.
Whereas stability depends on real, lasting growth.
Ironically the government hopes the private sector will drive growth, yet the government's economic policies to date are stifling them.
Final thoughts...
People want stability after years of chaos, but not all forms of stability work.
If stability depends on geo-political calm, that’s not real stability. That’s just hope.