Former Bank of England head advocates for new fiscal measures to boost UK public spending

Mark Carney, the former Governor of the Bank of England, has stated that it makes "little sense" for fiscal rules to overlook the long-term benefits of public investment. He has called on the government to increase capital spending.

Carney suggested that instead of the current regulations, the government should adopt a more comprehensive measure of the economy's fiscal health to ensure that investment is not compromised, as reported by City AM.

"If government money is being spent to build or buy an asset on behalf of the nation, it is only right that its value is captured in the definitions of national debt," he penned in The Times.

Now serving as the chair of Canadian private equity giant Brookfield, Carney argued that the economy has been "starved" of investment due to a fiscal framework that encourages cuts to capital spending.

The existing fiscal rules mandate that debt must be on a downward trajectory within five years. This discourages governments from investing because the benefits are only realised beyond the five-year forecast horizon.

While several different fiscal rules are being considered, Carney emphasised that the crucial factor is whether the rules "allow long-term infrastructure investment to be appropriately recognised and rewarded".

He concluded by stating that it's time to account for the resulting value in national assets alongside national liabilities and to clearly communicate these values to UK citizens and investors.

Increasing public investment would enable the economy to adjust to significant structural shifts, such as the energy transition and the AI revolution, he claimed.

"UK budget rules born of austerity and forged in crisis can starve capital investment when it is needed the most".

Chancellor Rachel Reeves had previously indicated that she would reform the fiscal rules to "take account of the benefits of investment, not just the costs".

She submitted the first draft of the Budget, including her fiscal rules, to the Office for Budget Responsibility (OBR) on Wednesday.

A recent report by the Institute for Public Policy Research suggested that adopting public sector net worth (PSNW) in the fiscal rules could free up £57bn for the Chancellor.