As if Labour hasn’t already squandered enough of our money, this week Keir Starmer squandered billions more.
Keir Starmer has sidelined Rachel Reeves and markets fear the worst (Image: Getty)
Have we ever had a more financially feckless government? Chancellor Rachel Reeves set the tone straight after the election by signing off £10billion of public sector pay rises without demanding a single penny in productivity improvements.
She thought nothing of adding £25billion to business costs by hiking employer’s National Insurance in the Budget. Thousands of firms couldn’t take the hit to their wafer thin margins, and went bust. Restaurants and pubs are on their knees. Finding a job is hell right now.
Angela Rayner’s upcoming Employment Rights Bill will add another £5billion to company costs and destroy more jobs. She doesn’t care.
Energy secretary Ed Miliband is shovelling tens of billions into his net zero crusade, a vanity project to win praise from Labour activists while households pick up the tab.
Now Starmer has contrived to add an extra £5billion a year to the cost of servicing Britain’s debt bill through his cack-handed reshuffle.
By sidelining Reeves he has spooked the bond markets and forced government borrowing costs even higher. And guess who’ll foot the bill? Taxpayers of course, in the upcoming autumn Budget.
This morning, yields on 30-year gilts hit 5.73%, the highest ever recorded, above the levels that toppled Liz Truss.
That feeds through to the interest we have to pay on newly issued government bonds. That’s terrible news in a year when the Bank of England needs to sell £300billion of gilts.
Thomas Pugh, an economist at RSM UK, warned this “could cost the Treasury an additional £4billion to £5billion by the time of the Budget.”
That’s on top of the £100billion we expect to pay on debt interest this year.
Pugh previously warned that Reeves needs to find £20billion in extra taxes. Now thinks the figure will be closer to £25billion.
Markets are jittery for good reason. Investors now fear that the Treasury will tear up Reeves’s supposedly “iron-clad” fiscal rules.
Now that she’s been “sidelined”, it’ll be a lot easier for Labour to drop them, said Neil Wilson, investor strategist at Saxo Bank. “If the Treasury won’t break the rules, then perhaps Number 10 can?”
Wilson added said today’s gilt yields “is not a good look for the Labour government and underscores that there is little fiscal or economic credibility left”.
He’s not a politician, so he’s not trying to score cheap points here. He’s genuinely worried. And he’s not the only one.
With Reeves pushed aside, and the party’s left flank in revolt, markets fear that Labour will duck the difficult decisions required to balance the books.
This Budget was going to be a nighmare. Cutting benefits is never going to be popular. Targeting overstretched public services won’t cheer voters either.
Which leaves only taxpayers. Left-wing campaigners are calling for an assault on the wealthy, but ultimately, it’ll be the little people who pay.
It gets worses. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said another ill-considered tax blitz could destroy growth, triggering a “vicious circle” where taxes have to be hiked again.
Mark Dowding, chief investment officer at RBC BlueBay Asset Management, warned that Labour lacks a “credible plan” and is driving us “closer to a fiscal tipping point”.
And the more gilt yields rise, the faster we’ll get there.
