Trial now
JPY

Slow Start To Friday Trade

AUSSIE BONDS

Benefitting From Bid In U.S. Tsys

US SWAPS

TD Enter 5-Year SOFR Swap Spread Tighteners

US TSYS

Early Bid Holds

--Postponed UK Nov. 6 Budget Leaves Fiscal Rules In Limbo
--Office for Budget Responsibility Nov, 7 Estimates To Point To Higher Financing
Requirement
By David Robinson
     LONDON (MNI) - Accounting changes will slightly push up a key measure of UK
government borrowing needs, according to restated fiscal forecasts to be
published by the UK's Office for Budget Responsibility on Nov. 7, MNI
understands.
     The correction of some double accounting of corporation tax receipts will
feed through into a marginally higher Central Government Net Cash Requirement,
the report will show.
     No fresh government revenue raising or spending plans, or economic data
since the previous OBR forecasts in March, will be included in the restated
forecasts, following finance minister Sajid Javid's announcement Oct. 24 that he
was postponing the budget previously set for Nov. 6, against a backdrop of
Brexit delays and a looming election.
     Changes to official accounting also affect student loans and government
pensions, but only corporation tax is set to have significant impact on the
CGNCR, MNI understands.
     --GILT ISSUANCE
     The Office for National said in September the tax change would reduce
2018-19 fiscal receipts by stg2.6 billion. The Debt Management Office is likely
to publish revised plans for issuance of UK Treasury bonds, or gilts, at the
time of the next budget, which will now not be made public until after the
election set for Dec. 12.
     The budget should be accompanied by a new set of government fiscal targets,
after Javid said Sept. 4 he would review old rules. Under his predecessor Philip
Hammond, 2020/21 borrowing would have been constrained to below 2% of GDP, after
adjusting for the economic cycle, and debt should have fallen as a percentage of
GDP. The government also previously aimed, over the longer term, to eliminate
the deficit altogether.
     One option for Javid, if he is still in his job by the time the next budget
is revealed, probably early next year, would be to exempt investment spending
from targets, to make room for his ambition for more infrastructure spending.
     But Richard Hughes, former Director of Fiscal Policy at the Treasury, told
MNI it would be better to base rules on government accounts as a whole, via a
measure of public sector net wealth.
     "Governments are saying we want to go out there and borrow to invest and it
is going to be good for future generations, it is going to be good for
taxpayers, it is all going to pay for itself," Hughes, a Resolution Foundation
researcher, told MNI. "But how do you demonstrate if that proposition is
actually credible? How do you hold a government to account for a proposition of
that nature? You can't do it by excluding the assets and just showing the
borrowing and just showing the debt."
     --NET WORTH WEAK BY WORLD STANDARDS
     UK public sector net worth, which captures all government financial and
non-financial assets and liabilities, is relatively weak by international
standards, with stg2.3 trillion of assets outweighed by stg3.8 trillion of
liabilities. Hughes argues that a rule to increase the measure as a percentage
of GDP by 2024-25 would force the government to concentrate more on the value of
its investments.
     Such a measure would also better reflect the impact of unconventional
monetary policy, by showing how Bank of England asset purchases through
quantitative easing and provision of cheap funding to banks in return for
collateral show up on both sides of the balance sheet.
     The ONS now publishes quarterly data on the overall balance sheet and the
OBR has begun to forecast the government's financial balance sheet, providing a
better picture of the impact of BOE policy on future fiscal accounts.
     "If you compare that to where we were ten years ago, the whole of
government accounts was coming out 18 months after the end of the financial year
and it was just not timely enough to tell you what to do with the public
finances in the budget," Hughes said.
     There are, however, potential pitfalls to such an approach. Charles Bean,
head of OBR forecasting and a former BOE deputy governor, said at a Resolution
Foundation event that while he favoured comprehensive balance sheets there was a
risk of incentivising short-term borrowing to invest in assets which could prove
hard to sell.
     "As somebody who sat through the financial crisis and the eurozone debt
crisis that fills me with horror," he said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$,MFB$$$,MGB$$$]