ReutersNothing has been more important to the Labour Party under Sir Keir Starmer than economic credibility.Chancellor Rachel Reeves has set out clear fiscal rules, such as getting debt falling as a share of national income by the end of this parliament, and she has made sticking to these rules a crucial test of the government’s credibility.That’s what makes the recent rise in government borrowing costs potentially so dangerous for Reeves, the Treasury and – arguably – Sir Keir Starmer’s entire political project. If the government has to spend a lot more money paying interest on debt, then it is less likely to meet its rules.On current trends, 26 March is set to become a critical date. That is when the independent Office for Budget Responsibility (OBR) will deliver its latest forecasts, including an assessment of whether the government is on course to meet its fiscal rules or not.Suppose the OBR says the government is not on course. It’s important to stress this may not happen – but it is something that senior government figures are growing more jittery about by the minute.Reeves would have a decision to make. She has previously committed only to make significant tax and spend announcements once a year at the autumn Budget. A Treasury spokesperson said last night that “meeting the fiscal rules is non-negotiable”. That would suggest she would have to break her commitment and announce, or at least pave the way for, measures to bring the government in line with its rules.What could that mean? In principle, it could mean either tax rises or spending restraint. In practice, given the significant increase in employers’ National Insurance rates in October, it would mean spending restraint – Darren Jones, the Chief Secretary to the Treasury, practically said as much in the Commons today. To be clear, spending restraint would not necessarily mean spending cuts, just much lower spending increases than would otherwise happen.This is where economics could collide with politics fast. It’s all very well for the Treasury to take measures to soothe the bond markets, where government debt is traded. But just because a strategy is the most economically viable available, that doesn’t mean it is politically viable in a Labour Party made up of MPs who have spent the past 14 years decrying Conservative austerity. Many Labour MPs, among them cabinet ministers, believe there is little fat left to trim from the state. They were already …
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[mwai_chat context=”Let’s have a discussion about this article:nnReutersNothing has been more important to the Labour Party under Sir Keir Starmer than economic credibility.Chancellor Rachel Reeves has set out clear fiscal rules, such as getting debt falling as a share of national income by the end of this parliament, and she has made sticking to these rules a crucial test of the government’s credibility.That’s what makes the recent rise in government borrowing costs potentially so dangerous for Reeves, the Treasury and – arguably – Sir Keir Starmer’s entire political project. If the government has to spend a lot more money paying interest on debt, then it is less likely to meet its rules.On current trends, 26 March is set to become a critical date. That is when the independent Office for Budget Responsibility (OBR) will deliver its latest forecasts, including an assessment of whether the government is on course to meet its fiscal rules or not.Suppose the OBR says the government is not on course. It’s important to stress this may not happen – but it is something that senior government figures are growing more jittery about by the minute.Reeves would have a decision to make. She has previously committed only to make significant tax and spend announcements once a year at the autumn Budget. A Treasury spokesperson said last night that “meeting the fiscal rules is non-negotiable”. That would suggest she would have to break her commitment and announce, or at least pave the way for, measures to bring the government in line with its rules.What could that mean? In principle, it could mean either tax rises or spending restraint. In practice, given the significant increase in employers’ National Insurance rates in October, it would mean spending restraint – Darren Jones, the Chief Secretary to the Treasury, practically said as much in the Commons today. To be clear, spending restraint would not necessarily mean spending cuts, just much lower spending increases than would otherwise happen.This is where economics could collide with politics fast. It’s all very well for the Treasury to take measures to soothe the bond markets, where government debt is traded. But just because a strategy is the most economically viable available, that doesn’t mean it is politically viable in a Labour Party made up of MPs who have spent the past 14 years decrying Conservative austerity. Many Labour MPs, among them cabinet ministers, believe there is little fat left to trim from the state. They were already …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]
