London (AFP) – Britain’s finance minister Rachel Reeves on Wednesday promised to keep a “tight grip” on public spending as interest rates soar on the UK’s long-term debt, and set November 26 for her annual budget speech. The British pound tumbled on Tuesday as the yield on 30-year UK government bonds hit its highest level since 1998, with concerns growing about soaring state debt across major economies.
“We must bring inflation and borrowing costs down by keeping a tight grip on day-to-day spending through our non-negotiable fiscal rules,” Reeves said in a statement. Britain’s economy has struggled to grow after Reeves hiked taxes and slashed public spending after Labour won a general election just over a year ago. Some policies were later reversed after Labour took heavy criticism, and her position as chancellor of exchequer is rumoured to be at risk heading into the budget — an annual tax and spending plan delivered to parliament.
Talk of her future resurfaced this week after Prime Minister Keir Starmer promoted her deputy at the Treasury, Darren Jones, to be his chief secretary. The chancellor says she is trying to balance the books so that tax revenues match day-to-day spending, meaning the government borrows only to invest. Analysts warn of more levies in November’s budget to help meet the goal.
“Further tax hikes are almost certain in order to plug the black hole in the public coffers,” noted Matthew Ryan, head of market Strategy at global financial services firm Ebury. “But that alone won’t wash, with investors baying for spending cuts, wary of a perpetual tax trap that could choke the life out of the UK economy.”
A British think tank on Wednesday said rising bond yields were adding more than £3 billion ($4 billion) to the government’s debt interest costs. The Resolution Foundation added that Labour’s U-turns, including over cuts to social care spending, had added more than £6 billion to the spending bill. “The chancellor has officially fired the starting pistol on the countdown to one of the toughest second budgets in living memory,” said Resolution Foundation chief executive Ruth Curtice. The National Institute of Economic and Social Research has estimated that more than £41 billion per year is needed by 2030 to balance the public accounts.
© 2024 AFP
