She was proud when Rachel Reeves rose to the House of Representatives on the budget day of October 30th as the country's first female prime minister. Hope and your dreams. ”
But four months later, Westminster has few young or old men. They are in charge of the finances of Reeves' country. The binding she finds herself is more like a prime minister's nightmare than a dream.
Broadly speaking, things have not been planning Reeves at home or abroad since the end of October.
Growth is stagnant. The Bank of England said earlier this month that it had reduced its growth from its forecast of 1.5% in November to 0.75%, and borrowing costs increased.
This meant that to fund the government's huge mountain of debt, there would be less money to payers in taxation and then more money.
In this double-negative scenario, the bond market is struggling with a jitter match (not Liz Truss Style) that puts everyone in the lead, including the Treasury.
The £9.9 billion of headroom, or spare money, that Reeves had left in the system, was in her own “iron-covered” financial rules (she says she has to pay daily expenses from taxation). Stay within range. When the head of budget responsibility reported ahead of her spring statement at the end of next month and lowered her forecast again, the odds disappeared. You have to give something, and soon.
The government minister looks hopelessly when asked what Reeves can do. Global Threats – Donald Trump's tariffs and impact on American trading partners, including the UK, and demands for European countries to significantly increase defence spending, could the strategy adopted be blown out of the water internationally Added a sense of sexuality. event.
Labour lawmakers know that Reeves has three short-term options. But they also know that they are all very harmful politically.
One is to raise taxes again in the spring budget. The second is to cut plans beyond what is already planned towards the end of this Congress. And the third is to break the “iron covered” rule and be cursed.
Consultant Pantheon Macroeconomics British economist Rob Wood now has some positive messages from the economy, while the prime minister has all the financial leeways in the coming weeks. It will evaporate and therefore she will need to cut her spending or raise her taxes.
Not acting can be miserable. “If the Prime Minister refuses to take any action next month if her headroom is gone, there will be a market-favourable reaction,” he said.
“In the Treasury Department, which confirms that fiscal rules are unnegotiable, this casts offensive policy choices for the Prime Minister – unpopular public services and welfare,” said James Smith, research director at the Resolution Foundation. Implement tax increases or painful cuts. If this is not done, there is a risk of loss of trust in the financial markets.”
Reeves' difficulties, however, are exacerbated by the fact that she has eliminated one of the three major routes available to her during and since the budget.
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With taxes she was dressed in a very tight corner. Now, many economists have made a budget pledge to help her best option by increasing taxes, extending the Tory freeze on tax basis beyond 2028, thereby ending the freeze on the budget. I think it's about turning it around. The Finance Institute said the move to extend the freeze would bring between £3.5 billion and £4 billion if the national insurance threshold was also frozen.
However, during the October budget, Reeves said extending the freeze would “harm the working people.” She added: “When it comes to tax choices, this government chooses to protect people who work every time.” Shortly after providing the budget, she also said that the labor government will not “return more” with taxes. I told a businessman.
When it comes to spending cuts, pledges from Reeves and Keir Starmer try to keep the country from escalating austerity. Reducing spending in more sectors for NHS, schools, courts, transportation and public sector workers would look like a violation of the promise.
When it comes to breaking her financial rules, that's what one of the most inconceivable senior economists of all say. “It's going to pull the market away like that. She won't allow it to happen.”
All she can do is Ben Zarango of the Institute of Finance, praying for growth. But it still appears to be too late.
“Of course, the best way to get out of this financial restraint is to grow, of course,” he said. “There's a mix of recent data here. The government has released a number of proposals and policies aimed at boosting growth, many of which focus on long-term praise. I'm guessing it.
“But that's a problem for Reeves. The infrastructure building boom could bring significant economic benefits to the UK in the future, but the benefits of these growth will ease the financial constraints they face in the short term. There's no time to make it.”
