Chancellor Rachel Reeves will make big cuts to public spending in next week's budget after confirming rules limiting her spending powers will be overhauled to allow the government to release up to £50bn into infrastructure spending. I promise to withdraw it.
The Prime Minister said the Treasury would review the way the Treasury calculates the government's budget shortfall relative to other parliamentary budgets to help fund investment in public infrastructure.
Mr Reeves took the opportunity to attend the International Monetary Fund (IMF) annual meeting in Washington on Thursday to announce changes to the UK's debt rules, first revealed by the Guardian the previous day. He said he was not prepared to see public spending fall further below levels in other major countries.
Experts estimate that the new rules could free up more than £50bn of spending over five years, compared with plans left by the previous Conservative government.
“I can confirm today that we will change the way we measure debt in next week's budget statement, and we will provide the details to Congress,” Reeves told reporters in Washington.
He did not say which of the various debt measures being considered he had chosen, but the Guardian has been told by senior government officials that he plans to target public sector net financial debt (PSNFL). . This would take into account all of the government's financial assets and liabilities, giving it more freedom to borrow for long-term infrastructure investments.
In a bid to allay financial market fears that Labor would embrace a big spending spree in 2022 that mimics Liz Truss's infamous mini-budget, the Chancellor will maintain strict limits on the Whitehall budget, He said he did not intend to use all of the extra investment funds in the first budget.
“Giving the market confidence that the government is not borrowing for its day-to-day functions is critical to fiscal sustainability,” he said. “And we will work with the Office of the National Audit and the Office of Budget Responsibility.” [OBR] To make sure all these investments are properly verified.
“It's not about paying for a tax gift. It's about investing for long-term benefits for our country and our taxpayers.”
Bond traders are weighing the impact of a potential rise in Britain's debt levels following Wednesday's Guardian report, which saw the government's borrowing costs rise ahead of the announcement.
British government bond yields (real interest rates) rose by about 6 basis points in early trading on Thursday before easing back to above 4.2%, in contrast to falling borrowing costs in other peer countries, including the United States. It was spot on. The spread between German government bonds and German government bonds rose to the highest level in more than a year, according to Bloomberg.
Analysts at Deutsche Bank said the increase was “still quite modest compared to other periods prior to the Budget,” including the Truss event in September 2022, when financial markets were in turmoil. Ta. But they added that there was “little doubt that overnight news had an impact.”
Business leaders say uncertainty over the budget has undermined confidence in the UK economy in recent months, after Chancellor Reeves warned households to expect “painful” decisions on tax and spending. It warns that it is declining.
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Mr. Reeves said he would change the way debt rules are calculated to create more room for investment, but would stick to the requirement that day-to-day spending match tax revenue.
Private sector growth slowed more than expected in October, according to figures released on Thursday. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Activity growth has fallen to its lowest level in nearly a year.”
Jeremy Hunt, the shadow chancellor of the exchequer, said Mr Reeves' decision to change fiscal rules would force the Bank of England to keep interest rates high for an extended period of time and would increase mortgage payments.
“The consistent advice I received from Treasury officials was that more borrowing meant longer interest rates, making mortgages harder on families,” he said.
“What's even more remarkable is that the Chancellor doesn't think it's appropriate to announce this major change to fiscal rules to Parliament. Markets are taking notice.”
Mr Reeves said the government would put in place “guardrails” in how investment spending was carried out to ensure taxpayers got value for money, adding that spending would be monitored by the OBR and the National Audit Office. .
