Rachel Reeves, in her next budget, will promise to reverse massive cuts in public investments after she confirmed rules that limit her spending power would be overhauled so the government could release up to £50bn in infrastructure spending.
The chancellor announced that she would review how the Treasury calculates shortfalls within the government budget for the remainder of the Parliament to release funds to invest in infrastructure.
Reeves used her visit to the annual meeting of the International Monetary Fund in Washington, DC on Thursday to make an announcement that she will change Britain’s Debt Rules – as revealed first by The Guardian earlier the day. She stated that she did not want to see the public sector investment levels fall further behind those of other major economies.
Experts estimate that the new rules will release more than £50bn in five years, compared to the plans of the previous Conservative government.
Reeves said to reporters in Washington that he would be changing the way we measure debts in the budget announcement next week. I will give the details in parliament.
She did not say which of the debt measures she was considering, but a senior source in government has told us that she is targeting net financial liabilities of the public sector. This would include all of the government’s assets and liabilities. It would give her more flexibility to borrow money for long-term investment.
To allay fears in the financial markets that Labour might allow a spending spree, similar to Liz Truss’s infamous 2022 mini-budget the chancellor stated she would maintain strict budget limits in Whitehall and not spend all of the extra investment funds during her first budget.
She said, “It is really important that we give markets confidence that we are not borrowing money to pay for day-today government functions,” for the sustainability and health of the public finances. She added: “We’ll also work with the National Audit Office [NAO] and the Office for Budget Responsibility (OBR] to ensure that all these investments are validated properly.”
It’s not for paying tax giveaways. It’s about investing in things that will give a long-term benefit to our country and to taxpayers.”
Bond traders weighed the impact that a rise in UK debt after Wednesday’s Guardian report would have on the cost of borrowing by the government.
The yield on UK government debt – the actual interest rate – rose six basis points in the early trading of Thursday, before easing. This contrasted with the falling borrowing costs in other countries including the US. Bloomberg reports that the spread between German debt and gilts has reached its highest level in over a year.
Analysts at Deutsche Bank stated that the increase is “still modest” compared to other pre-budget times, including Truss’s September 2022 event when financial markets went into a tailspin. They added that “there’s no doubt the overnight news had an effect.”
After warnings from the chancellor that households should expect “painful decisions” on tax and expenditure, business leaders have warned that uncertainty about Reeves’s budget has weakened confidence in the British Economy in recent months.
Reeves stated that she would alter the way in which debt is calculated to allow for more investment space, but she would still insist on the requirement that day-today expenditure be matched with tax receipts.
The figures published on Thursday showed that the growth of the private sector was slower than expected in October. Chris Williamson said that the growth of business activity in October was at its lowest level for almost a year. This is due to the gloomy rhetoric from government and the uncertainty surrounding budget.
The shadow chancellor Jeremy Hunt said that Reeves’s decision to alter the fiscal rules will force the Bank of England’s interest rates to remain higher for longer, and increase the amount paid on home loan.
He said that Treasury officials always told him to borrow more because the interest rates will be higher and for longer. This would punish mortgaged families.
The markets are watching.” “The markets are watching.”
Reeves stated that the government will place “guardrails” on the way investment spending is carried out in order to ensure taxpayers get value for their money. He added that the OBR and National Audit Office would monitor spending.
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