MNI INTERVIEW: UK Fiscal Rules Allow Loan Lift- ex-OBR's King

The UK government can find room to boost investment and lending within the fiscal rules, but it will be challenging to do this on a large scale, former Office for Budget Responsibility steering committee member of the Andy King told MNI.

Two options under consideration by policymakers ahead of July 20, when Andy Burnham is set to replace Prime Minister Keir Starmer, are to beef up NISTA, an agency which scrutinises major infrastructure and service projects, and to bring in private sector funding for governmental bodies like the British Business Bank. King, a partner at Flint Global, said announcements were possible in the autumn budget but getting money out of the door takes time.

"To get from proposal to announcement. I think it's plausible to think that could be done in time for an autumn budget. To get from announcement to implementation, I think that's probably the more challenging thing," King said in an interview.

"Lending at scale just takes time to implement. The real world doesn't move that fast. You can't just magic up multi-billion pound good value projects," he added. "It's not that there are good options on the shelf that they're not using. My impression is that they're doing everything they can, but they're starting from a very low base.”

FAST-TRACKING INVESTMENT

One of the plans being looked at, proposed by former Treasury minister and Goldman Sachs official Jim O'Neill, is to use NISTA, the national infrastructure authority, "in a way that would free up more scope to invest in projects that have high returns ... a micro project-by-project way of saying, 'look, if this project is good for the economy, it can go ahead,’” King said.

While under the Public Sector Net Financial Liabilities (PSNFL) measure adopted for the debt-to-GDP target in October 2024 official loans can be netted out on the state’s balance sheet against the public spending they finance, in practice the Treasury was wary of allowing unlimited fiscal risk and restricted such activity to named entities like the National Wealth Fund, the British Business Bank, The Housing Bank, King said. (See MNI INTERVIEW: Little Scope For Further UK Fiscal Loosening)

This makes for slow going, he noted. The National Wealth Fund "has essentially been now implementing as fast as it can, getting money out the door as fast as it can, but obviously it has to do due diligence on each deal," King said. Its lending is "in the low single digit-billions a year, which is, real money, but it's still about 0.1, 0.2% of GDP, so it's not going to totally change the economy."

To use PSNFL more extensively they "probably have to relax some of these other constraints particularly the additionality one, the one that says don't lend to something where the private sector could have loaned them the money anyway. That test is quite challenging.”

Under O’Neill’s proposal, NISTA would be able to either accredit that a project is real rather than financial investment, and that therefore it should not count against the fiscal target, or else to certify that loans which fund it should be netted out on the government’s books under the PSNFL measure, King said.

The constraint is that "in both of those options, if you do more lending or you do more infrastructure investment, you have to issue the gilts to finance it," King said.

PRIVATE SECTOR 

Another idea, from former top Treasury official and now Barclays Chairman John Kingman together with investment houses and pension companies, would be to allow development corporations to borrow from the private sector rather than be funded by gilts, King said, which would enable them to sit outside the fiscal targets. (See MNI INTERVIEW: Gilt Spikes Make Case To Slow QT - NIESR Head)

That goes "beyond PSNFL, and we'll say 'this is real investment in real assets, and therefore it is public spending, but we will set that outside the fiscal targets, because it's clearly investment with high economic returns'," King said.

Of the two he said that the O'Neill proposal "sounds more all-encompassing" but appears not to be as far down the development track as the Kingman one.