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Budget flop: Rachel Reeves’s insistence on referring endlessly to a £22bn black hole in the public finances was a bond market dampener almost from the first day
The names of Harold Lever and Joel Barnett come to mind. During an LBC radio interview the former Cabinet Secretary Gus O’Donnell, known as ‘GOD’ at Westminster, argued that Number 10 needs ‘more intellectual heft and economic expertise’ to tackle the upcoming spending review otherwise it will be ‘incredibly messy.’
It represents a big divestment of power and flexibility to an independent agency.
Governor Andrew Bailey, accompanying the Chancellor to China, could have been a reassuring presence on Threadneedle Street at this time. He is well-schooled in crisis management.
It is now likely that the OBR will forecast higher borrowing in March fuelled by extra interest costs of some £8billion, against the £10billion headroom.
The Bank of England, having suffered the slings and arrows of keeping rates too low for too long and Russia’s war on Ukraine, may be reluctant to help.
It is too early to predict what will happen on March 26, when there is meant to be a vanilla OBR update.
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Except in the case of an emergency (such as Covid-19), it requires the Office for Budget Responsibility (OBR) to provide a full assessment of every ‘fiscally significant’ event.
In addition, there could be a sharp reduction in the growth forecast, the economy having ground to halt in the second half of last year.
The only thing propping it up is the splurge of spending on public services where money is being splashed without productivity goals.
The muddle only became worse. The early passage in July of Labour’s Budget Responsibility Bill, intended as riposte to Trussonomics is a mistake.
If it were to lower short-term rates, it could assist in guiding down longer borrowing costs.
Even if the markets were to correct cuts in public spending, a new austerity may be unavoidable unless Reeves finds a way of retreating from her pledge before the CBI business leaders of no more tax rises after the £40billion already removed from the pockets of business and consumers.
The reality is that her stewardship of the Treasury and Labour’s occupation of Downing Street has been strewn with fundamental errors.
Her insistence on referring endlessly to a £22billion black hole in the public finances, still part of Jones’s spiel in the Commons, was a bond market dampener almost from the first day.
