ALEX BRUMMER: Chancellor seeks international help for altering debt guidelines

Britain’s first female Chancellor is making a splash among the blue-suited financial executives at the International Monetary Fund.

The imminent approach of Rachel Reeves’s first Budget is attracting enormous attention.

When she marched along the balcony in the IMF’s headquarters building, wearing a pale lilac trouser suit and sporting an Armistice Day poppy, out came the mobile phones and cameras with bankers and monetary officials seeking selfies.

Enjoying the moment, Reeves even posed against the balustrade as monetary officials, male and female, took their snaps. I can comfortably report that none of her recent Tory predecessors such as Jeremy Hunt or Philip Hammond attracted the same attention.

Kwasi Kwarteng was more of a magnet for photographers but only because of his late-night retreat from the British ambassador’s residence in Washington.

Demolition: The easing of the debt rule gifts the Government up to £75billion for public investment

Reeves has been off to a dodgy start since taking the helm, with claims of inheriting the worst economic picture since the Second World War and her discovery of a £22billion black hole in the public finances. That has become the mantra for every Labour minister when the questions are posed about failing departments.

By the standards of the changes Reeves will be unveiling on October 30, her confirmation of a new way to run the public finances will make the already declared shortfall minor league.

The ‘stable’ rule to make current pay for itself through tax and the fresh, capacious debt rule, particularly the latter, is almost as radical as anything that Liz Truss tried.

The easing of the debt rule gifts the Government up to £75billion for public investment, increasing it from 1.7 per cent to 2.5 per cent of output (gross domestic product). The uncertainty certainly has alerted the gilts market with the gap between the yield on benchmark German bonds and British instruments widening. Sensibly – unlike Truss – the Chancellor appears to have learned lessons from that experience.

She is spending time in Washington getting buy-in from global leaders. Among those she has brought on side are the feisty US Treasury Secretary Janet Yellen who memorably delivered a dressing down to Kwarteng two years ago.

Reeves also has made the case to IMF managing director Kristalina Georgieva that her proposals are in line with Fund advice on the need for lagging European economies to inject more funding and effort into technology, start-ups and innovation.

Certainly, putting more money into cutting-edge tech and pharma is an excellent idea. Reeves won no prizes for techno-enthusiasm when she axed £1.3billion of funding for tech and AI including a £800m research project into super-computers at Edinburgh University.

This paper has long advocated bigger tax breaks for Research and Development. It is also the case that Britain would be in a much better place to support tech and improve productivity had it not so easily allowed command and control of several great technology companies to fall into unsafe private equity and overseas hands. Reeves’s new debt rule which excludes all manner of financial liabilities from being counted as public debt, such as Bank of England liabilities and student loans, is controversial. But several smaller European economies, including the Netherlands and Denmark, do something similar.

The US has never counted Federal Reserve pandemic era bonds as part of its debt pile. It is also understood that Reeves has shared her broader fiscal rules with her former bosses at the Bank of England. Truss never met or called the governor Andrew Bailey. There can be no confidence that funds for public investment will be spent well. Governments are not good at that. Reeves, at least, had good sense to prepare the ground.

Zone defence

The next several weeks in the US are unlikely to be calm whatever the outcome of polling.

As a precaution, huge concrete barriers are being erected around the White House, on Capitol Hill and other public buildings in defence against a repetition of the January 6 riots of 2020. Nothing is likely to be dismantled until after the inauguration of the next president on January 20.

Nerve-wracking days lie ahead for geo-politics and markets.