Following last week's episode with Ed Balls, former Treasury boss Nick Macpherson joins Sam and Ayesha to interrogate the economic environment facing the next government. We’re hearing a lot from Labour about economic security, fighting off the party’s reputation for ‘spendonomics’, but is the party being too far too cautious and harming its plans for growth?

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Nick Macpherson on this week’s pod suggests maybe it is. The former Treasury boss says the party shouldn’t get “obsessed with fiscal rules”

Don’t get obsessed with fiscal rules, ex-Treasury boss warns Labour

A future Labour Government should borrow to invest and avoid being “too obsessed with fiscal rules”, says the former Treasury boss, Sir Nick McPherson, on this week’s The Power Test podcast with Ayesha Hazarika and Sam Freedman.

In a wide-ranging discussion about a future government transition and Labour’s economic plans, Sir Nick said:

Borrowing:

“My guess is Labour will, and so they should, borrow a bit more in order to invest. Providing that investment program is focused on what really matters and is then seen through I don't see that as a great problem in terms of the public finances. Indeed, some would argue that that Labour may be being too cautious.”

Labour’s fiscal plans:

“The case for being tough now is potentially it gives them room for manoeuvre. It gets them credit with the financial markets which, actually, is even more important today than it was in 1997 simply because the national debt is a whole lot higher and the interest rate bill required to service that debt is very high indeed.

“The other thing is, and this may surprise some people, I'm a relative optimist about the economy so I think the Labour inheritance may just be a little bit better than the OBR and others are suggesting. Real wages are rising, interest rates may come down this year which will help people with mortgages and so on, and we just may see more spending in the economy, the economy growing a bit more fast and rather more revenues coming in than expected. If I'm right, and you know I'm not always right, they may actually have rather more room for manoeuvre and so they may be able to stick with the fiscal plan whilst also spending a bit more.

“My guess is also they will have some tax increases up their sleeve of the sort which is consistent with the wider commitments not to raise the main rate, say, of National insurance and income tax.”

The £28 billion and fiscal rules:

“Did they have to drop the £28 billion commitment? In the end, £28 billion is not actually very much these days. It's about 1% of GDP. I mean, compared to the sorts of money Nigel Lawson gave away in 1988 this is chicken feed. But I can see in an uncertain world why they just want to be a bit cautious."

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