Rachel Reeves issued huge warning over UK debt | Politics | News


Rachel Reeves has been warned her plans could lead to the crumbling of Britain’s economy.

Ms Reeves confirmed on Thursday (October 24) a technical change in the way she would measure progress against the Labour Government’s debt management target.

Nick Winters, a partner at Blick Rothenberg, warned taxpayers would still be on the hook as increased borrowing and increased borrowing costs will need to be paid back over time, with interest.

He added: “At some point, she would need to raise taxes even further or risk widening the fiscal £22bn ‘black hole’, which given the tax rises already proposed in the budget, is a scary possibility.”

Mr Winters told Sky News the change may present an immediate “win” for the Chancellor, but there are only so many tweaks Britain’s economy can take before it “crumbles”.

Under the current proposal, the Chancellor is expected to target public sector net financial liabilities (PSNFL) as her new benchmark for government debt rather than the current measure of underlying public sector net debt.

Ms Reeves’ pivot to PSNFL would give her greater headroom to meet her target to reduce debt because it includes a wider mix of state assets and liabilities – notably including expected student loan repayments to offset some of the liability.

Had PSNFL been used as the debt target in the March 2024 budget, the “headroom” – the margin by which the fiscal rule is met – would have increased by £53billion, according to the Institute for Fiscal Studies.

Shadow Chancellor Jeremy Hunt said the consistent advice he received from Treasury officials during his time as Chancellor was always that increasing borrowing meant interest rates would be higher for longer and punish families with mortgages.

He added: “What’s even more remarkable is that the Chancellor hasn’t seen fit to announce this major change to the fiscal rules to Parliament. The markets are watching.”

The prospect of tens of billions of pounds in extra state borrowing sent gilt yields up by as much as eight basis points on Thursday.

It is believed this could see Threadneedle Street rein in cuts to interest rates, impacting UK gilts by sending prices lower, which conversely causes its yield to rise.

Gilts were also said to be under pressure after Bank of England governor Andrew Bailey said on Wednesday (October 23) that questions still remained as to whether elements of inflation may remain stubborn in the economy.

Ms Reeves, writing in the Financial Times, said her fiscal rules will be “the rock of stability” at the core of her Budget on October 30.

Labour’s 2024 General Election manifesto said Ms Reeves would follow two rules: The current budget would be in balance so that day-to-day costs are met by revenues; The second rule is for debt to fall as a share of the economy by the fifth year of the economic forecast.

Ms Reeves said: “My fiscal rules will do two things. The first and most important: my stability rule will mean that day-to-day spending will be matched by revenues.

“Given the state of the public finances and the need to invest in our public services, this rule will bite hardest.

“Alongside tough decisions on spending and welfare, that means taxes will need to rise to ensure this rule is met. I will always protect working people when I make these choices, while taking a balanced approach.”

She added that, “crucially”, her stability rule will also cover the interest on UK national debt and unlike the previous government she won’t cut capital budgets to make up for shortfalls in the day-to-day running costs of departments.

Ms Reeves continued: “My second fiscal rule, the investment rule, will get debt falling as a proportion of our economy. That will make space for increased investment in the fabric of our economy and ensure we don’t see the falls in public sector investment that were planned under the last government.”



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