Pressure is mounting on Rachel Reeves to spell out how she will get the UK’s finances back under control amid growing Labour jitters over her handling of the economy.
The cost of servicing UK debt has risen to highs not seen since the financial crisis in 2008 this week, wiping out the Chancellor’s thin £9.9bn headroom. The volatility in the gilt market is mainly because of the strong US economy and incoming Trump presidency, but Reeves is also accused of hemming herself in with her fiscal rules limiting her ability to respond.
Home Office sources told The i Paper that there were “definitely some challenging decisions ahead” when it came to spending as the Treasury places greater pressure on officials to find efficiencies.
Higher interest rates risk wiping out Reeves’s fiscal breathing space and means she faces having to raise taxes or make deeper cuts to public spending if she is to meet her fiscal rule not to borrow for day to day spending.
Ben Zaranko, Associate Director at the Institute for Fiscal Studies, said the Chancellor faces a “rather unenviable set of options”.
“If higher interest rates wipe out her so-called ‘headroom’, something will have to give,” Zaranko added.
“Unless she’s able to show that her plan is working, that growth will be coming from somewhere, then it might be that Keir has to make a decision. You can be sure it won’t be him taking responsibility for it,” one Labour MP told The i Paper.
“A dour Scot in charge of the purse strings. We’ve had it before.”
“We did lose that a bit in the Budget,” they said.
Luke Tryl, director of think tank More in Common, said up until now Starmer had been the Chancellor’s “human shield”, but added that there was a risk “she could start to become the focal point” for the public’s anger.
“The party is betting on the long-term benefits of these tough decisions, hoping they will pay off in time for the next election. However, as scrutiny intensifies, Reeves may feel compelled to reconsider her approach to improve her personal standing with the electorate,” Hopkins said.
A former chancellor told The i Paper that they sympathised with her dilemma, adding: “I think it was an impossible call for Rachel Reeves. Terrible look to go but looks like panic to cancel.”
Labour promised not to be the Tories – and now have an impossible political reality to sell
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