Some thought Rachel Reeves’s experience at the Bank of England meant she ‘knew how to run the economy’. She would keep an iron grip on budgets and demand value for money. The reliability of her management of the Treasury would unlock a wave of support from global finance. Ahead of the election, Reeves, along with fanboys such as the former Bank of England Governor Mark Carney, boasted endlessly about her financial and economic expertise. But only four months into her time in No. 11, there are already alarming signs she has lost control of spending.
The public sector borrowing figures published today were far worse than expected. The government borrowed another £16.6 billion over September, which was £2.1 billion more than the same month last year. So far this year, the government has borrowed £79.6 billion, which is £6.7 billion more than projections from the Office for Budget Responsibility. Why has borrowing been so high? The economy is still just about growing, and there has not been a crisis of any sort to deal with. With the Budget only a week away, the OBR will have to quickly rewrite its projections, especially for interest payments that will now be far higher than predicted.
It is not hard to work out what has gone wrong. Inflation-busting pay awards for the public sector have added a huge amount to day-to-day spending, while there is very little sign that departments have managed to get their budgets under any form of control. True, Reeves has only been in office for four months, and in fairness, she has had relatively little time to impose her will on the government machine. That said, the overshoot on borrowing still matters. To start with, bond yields were already ticking up, and the latest data will only confirm the suspicions within the markets that the UK is about to embark on a wild spending spree.
More importantly, if Reeves is to make her huge tax rises next week stick, and to find all the money she wants for investment, she will have to demonstrate that she can genuinely discipline the government machine. People and companies will be more willing to pay the extra taxes if they can be convinced that the money is being well spent, and won’t simply be frittered away on higher pay awards and extra paper clips. Right now, Reeves is failing in that task – and it will be very hard for her to get the spending juggernaut back under control, or win support for her tax increases, now.