Britain’s Reeves promises “guardrails” against additional borrowing in the budget

LONDON, Oct 5 (Reuters) – British Finance Minister Rachel Reeves said she would introduce “barriers” to ensure additional borrowing for investment in her first budget is not excessive, as she seeks to reassure investors about an expected rise in public debt.

“It’s about making prudent and sensible investments over the long term, and we need guardrails around that,” Reeves told the Financial Times in an interview published late on Friday.

Reeves is due to deliver his first tax and spending budget statement on October 30, a milestone for Prime Minister Keir Starmer’s new Labor government, which has promised to increase investment in areas such as infrastructure and the transition to a net zero economy to accelerate UK economic growth .

With national debt at about 100% of annual economic output, investors are waiting to see how much more borrowing Reeves decides to do with some of the tax increases.

British government bond yields have risen more than other government bonds in recent weeks, partly due to concerns about the scale of additional debt sales. At the same time, warnings about a difficult budget undermined consumer confidence, casting a shadow over the first months of the new government.

Reeves and Starmer remember how, in 2022, the British bond market was hit by former Prime Minister Liz Truss’s plans for large, unfunded tax cuts, forcing her to quit.

Reeves said the Office for Budget Responsibility, which produces forecasts that underpin the government’s spending and tax plans, and the National Audit Office, the spending watchdog, would review her public investment plans, which would also encourage private investment.

“We will make sure that investment actually stimulates economic growth and we will look at the role of institutions to demonstrate this, including, for example, the NAO and OBR,” she told the FT.

Reeves said she hoped the effects of higher public investment beyond the OBR’s five-year forecast period would be taken into account.

A former Bank of England economist confirmed she plans to revise the government’s fiscal debt rule to “take into account the benefits of investment, not just the costs”, but declined to say what additional spending the changes would allow.

She also said higher taxes were needed to avoid cuts to already tight public finances suggested by the previous Conservative government’s plans.

“There will be no return to austerity policy,” she said. “The idea of this budget is to wipe the slate clean and take an honest assessment of spending pressures and taxes,” Reeves said. “The previous government was based on fiction. The budget is an opportunity for honesty in public finances.

Reporting by William Schomberg in London and Jahnavi Nidumolu in Bengaluru Editing by Chris Reese and Louise Heavens

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