Rachel Reeves on a visit to China to encourage growth. (Image: Getty)
Rachel Reeves’s plans to ramp up spending were thwarted when Treasury borrowing passed official forecasts made in the Budget.
Government borrowing rose by more than expected to £17.8 billion last month, the highest December figure for four years, according to official data.
The Office for National Statistics (ONS) said public sector net borrowing was £10.1 billion higher than the same month last year.
Economists had predicted £14.1 billion of borrowing for December.
Liberal Democrat Treasury spokeswoman Daisy Cooper MP said: “This is yet another sign that the Chancellor’s Budget has not worked. It’s now putting people’s mortgages at risk and will make it even harder for the Chancellor to meet her borrowing rules.
“The answer to this is to turbo-charge growth by scrapping the jobs tax, and raising the necessary revenue for our NHS from the big banks and tech companies instead.”
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The data covers a period when the UK cost of borrowing had been climbing but before the turmoil in global bond markets earlier this month that sent the yield – effectively the interest rate – on government debt surging.
At a Bloomberg event at the World Economic Forum in Davos, Ms Reeves defended her approach to the public finances with her two fiscal rules of paying for day-to-day spending through tax receipts and bringing debt down as a share of gross domestic product.
She acknowledged that the £9.9 billion of headroom to meet those targets in the final year of the economic forecast was “tight” but added “those fiscal rules are important to us because they are the bedrock, the foundation of that stability that I’ve spoken about”.
“So, we will continue to make decisions to ensure that we meet those fiscal rules.”
The Government has also been hit by rising borrowing costs in January, but Ms Reeves played down the impact that would have on meeting her rules.
“There’s been, undoubtedly, global movements in financial markets this year, mainly driven by the US but, of course, the UK gets caught in those headwinds.
Rachel Reeves leaves a Cabinet Meeting at Downing Street. (Image: Getty)
“The Office for Budget Responsibility are just starting their forecast process and they don’t take into account just one week’s moves in financial markets, they look at a period of time.
“But I don’t think we should get ahead of ourselves, there’s a couple of months before that OBR forecast is published, I will respond to that in the proper way and make sure that we continue to meet those fiscal rules.”
Ms Reeves and Business Secretary Jonathan Reynolds are currently at the World Economic Forum to promote UK investment.
Chancellor Ms Reeves announced on Tuesday that the spending review, when she is expected to reveal multi-year spending plans for Government departments, will take place on June 11.
Darren Jones, the chief secretary to the Treasury, said: “Economic stability is vital for our number one mission of delivering growth, that’s why our fiscal rules are non-negotiable and why we will have an iron grip on the public finances.
“Through our Spending Review we will interrogate every line of government spending for the first time in 17 years. We’ll root out waste to ensure every penny of taxpayer’s money is spent productively and helps deliver our Plan for Change.”
