What should Reeves say and continue and declare after that?

Digest opened free editor

Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

It is difficult not to feel sorry for Rashil Reeves. She tries to be responsible and supportive. But she presides over the recession economy With high debt and a set of financial rules that she set themselves only a few months ago, but it seems likely to break. Its tax rises At the time of the budget (and remains) it is not very popular. However, it now looks insufficient. It is bound by pledges, especially not to raise income or valuable added taxes, which were held before the last general elections. Financial markets are now bustle to reduce discounts In response to the high proliferation of American and German ties, while The need for increases in defensive spending He became overwhelming. What is the advisor to do? What is the Prime Minister to already allow her?

The financial situation was developed by Ruth Cortis, the new head of the decision institution, in A. The blog was published last Friday. Interestingly, she was previously the head of the financial treasury department. However, it now runs a center for thinking that focuses on the problem of stagnant living levels. This appears to put it on both sides of the discussion today about austerity for generosity.

Cortis argued that the budget responsibility office told the chancellor, before her spring statement on March 26, that she would “lose her goal to cover daily spending with taxes within five years (known as” the current budget budget “).

It also exports two interesting points on financial history in the United Kingdom since 2010. The first is that nine years have passed since the last change in the estimated fiscal policy in the direction of tightening. The other is that OBR always expects almost currently a five -year budget. This, in turn, allowed this long date of mitigation. But Cortis suggests that the margin was decreasing and may have completely disappeared.

One of this is that the UK’s fiscal policy has been implemented over the past fifteen years. There was an emphasis during the postpartum stagnation, the crisis and the mitigation during the recovery after the crisis (with expansion during the epidemic being a special case). This is the opposite of what should have happened. However, in order to be fair to the Riffs, the “recovery” was also a miserable, and the decision of the decision on living levels showed.

One of the responses will have the advisor to play her own rules, as others did in front of her, through the promises to unreasonable restrictions on future spending, yet those that show her goals. If so, you will prove that the goals of the deficit for five years, and therefore it is ridiculous. At the same time, its bases will relax a few months after they are fully. if Refiz She was paid for that, you should definitely drop her in favor of that new.

Alternative approach, I also argued two weeks agoThe Prime Minister and the advisor will say, rightly, that this is a new world. The country now must contribute to defending its continent. However, you should do everything in his power to support economic growth and maintain social cohesion at home, in difficult times and is already happy. In this context, the previous promises cannot be binding. It will be necessary to borrow more in the short term of defense as well as raising broad taxes on income, sales and property and reducing ineffective spending more than previously shown. The government must also follow up on the abolition of pro -growth and investment restrictions more enthusiastic than before and be open to deeper integration in European initiatives in defense and new technologies than previously imagined.

Reforms are not difficult to imagine. It is not necessary for the Bank of England to pay interest on all bank reserves, for example, As my colleague Chris Giles He argued. The United Kingdom must follow other central banks in defining these reserves. This will not be a tax on banks, but it is the same on bank mediation. We need to shift from a bank -based financial broker system anyway. once again, We should not spend huge sums to keep young people inactive. Again, the triple lock should also be abandoned on retirement pensions. Moreover, many enjoy huge gains from property ownership. Taxes must now be imposed on some of this property wealth.

These, however, are the details. The basic point is that the government should look at difficult times as an opportunity, as well as a crisis. The country needs leadership. The bold government will work that the restrictions we have lived in taxes, spending and organization need to be reassessed. That new relevant should be made. This is not only important for the United Kingdom. It is also important to Europe. The times have changed. So we must.

[email protected]

Follow Martin Wolf with Myft On twitter