Rachel Reeves will saddle the UK with a £1.3tn “debt mountain” over the course of this parliament after hiding an extra tranche of borrowing in her Budget, a report has found.
The Chancellor claimed that she is cutting debt and borrowing in her tax-raising Budget, telling the House of Commons last Wednesday: “My fiscal rules will get borrowing down while supporting investment ... I said we would cut the debt and we are.
“Those are my choices. Not austerity, not reckless borrowing, but cutting the debt.”
Yet analysis by Sir John Redwood, Margaret Thatcher’s former senior economics adviser, shows that both debt and borrowing will continue to rise under Labour.
He claims that the Budget is misleading because it does not make clear that there is an extra £675bn bill to cover the cost of renewing existing borrowing in the form of government loans, known as gilts.
This is on top of £628bn increased government spending over the next five years.
Together, these two bills amount to a “debt mountain” of £1.3tn. The extra borrowing will take the national debt to £3.53tn – which equates to £50,840 for every man, woman and child in the country.
The revelation comes after the Chancellor raised taxes by £26bn at her second Budget last week as benefits were increased. Economists have already warned that the package has damaged growth.
Ms Reeves is also facing questions over her political future after it emerged she falsely represented the scale of the shortfall in the public finances.
Reeves ‘building a debt mountain’
In a report co-authored by Brexit Facts4EU, Sir John warns: “Rachel Reeves is building a debt mountain whilst claiming to bring the debt down. She wants to add a staggering £628bn to the state debt over the next five years, as if the £3tn the Government has already borrowed was not enough.
“She only brings in some tax rises at the end of the period to pretend late in the day to be doing something about her borrowing habits.
“Worse still for the bond market that she wants to provide her with all the money, is her need to borrow yet another £675bn to be able to replace existing debts as they fall due.
“It’s like watching someone who wants to go on a spending spree aim to take out a large overdraft, only to find they also need a pile of cash to repay the mortgage they already have when it expires.”
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Pointing out that the Chancellor “is unlikely to be in charge” when tax rises kick in after the next general election, Sir John questions whether the bond markets will “find another £1.3tn”.
He said: “The Bank of England is a seller of bonds, no longer a buyer. It is now making it more difficult for the Government to lay its hands on cheap cash by selling bonds at the same time as the Government is trying to raise money.
Story Continues“The pension funds which over the years have bought billions of government debt are maturing. The ones that bought many more bonds than they can afford are having to rein in their bond buying habits after making some big losses on them.
“It’s going to get tougher for the Government to borrow so much money than it was in 2020 to pay the Covid lockdown bills. Then state debt was lower, and the Bank and the pension funds were keen buyers.”
Warning Ms Reeves to “go more carefully”, Sir John adds: “Far from bringing debt down she envisages a huge expansion and a need for major refinancing. She is right to say spending more than £100bn each year on interest on debt is unacceptable. So why then is she planning to put that bill up to £125bn or more with all her extra and dearer borrowing? What other taxes will she raise to pay all that extra interest?”
The report suggests that “far from lifting the spectre of higher borrowing rates and reluctant lenders, her big spending boost just puts off further tackling the necessary task of getting debt and therefore interest charges under control.
“All of us and our children and grandchildren will be paying for Reeves’s debts for years to come.”
The revelation comes as the Chancellor is facing accusations of “lying” about £20bn to 30bn “black hole” in the public accounts.
The Office for Budget Responsibility (OBR) has revealed that when Ms Reeves warned of tax rises in a speech on Nov 4, she did not reveal that she had been told four days earlier that she had an unexpected £4.2bn in fiscal headroom.
Richard Hughes resigned as chief executive of the OBR on Monday after a report held him responsible for the unprecedented leak of last week’s Budget, describing it as the “worst failure” in the watchdog’s 15-year history.
Amid calls for the Chancellor to resign, the latest YouGov polling has found Labour is now less trusted on the economy than the Conservatives were under Liz Truss.
The survey shows that 10pc of voters think Labour would be the best political party to handle the economy – lower than the party’s nadir of 12pc in September 2019 under Jeremy Corbyn.
It is also below the Tories’ nadir of 15pc in October 2022. That came in the wake of Ms Truss and Kwasi Kwarteng’s mini-Budget – which triggered a crisis in the bond markets, a sharp rise in government borrowing costs and contributed to the downfall of the Truss administration.
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