Chancellor Rachel Reeves is fearing one date in 2025 more than anything else, economists have revealed in a damning warning to Labour.
The party is battling to prove its economic plan is working in the wake of financial market turmoil that has seen the interest the government pays on its national debt rise to a thirty-year high.
This means the government is paying more to service its debt and will find it harder to borrow more money, ultimately leading to less cash for public services.
Reeves wants to borrow £30billion to pay for massive public spending increases set out in her budget.
Rachel Reeves was in China when news of economic woes landed
Getty
As a result, the Treasury has warned Labour to be ‘ruthless’ in identifying public spending cuts in an effort to save cash.
One leaked internal letter from Number 11 also warned ‘difficult decisions’ were going to have to be made on Reeves’ budget.
Gloomy economic developments hardly help a Labour government already slipping in the polls, but now a crucial date has emerged that could finish the party off for good.
On March 26, the Office for Budget Responsibility (OBR)- Britain’s independent financial watchdog- will publish its Spring Forecast.
The OBR previously warned raising taxes by £40bn will stall growth
PA
The watchdog could find that with debt repayments costs spiralling, there is little to no room for the increased borrowing and spending set out by Reeves in her October budget.
Without growth and the subsequently larger tax receipts, the government could be forced to row back on Reeves’ tax crusade in what would be an embarrassing reversal akin to Truss’ disastrous mini budget.
Rupert Harrison, former chief of staff to George Osborne, said: “The Treasury will be nervously waiting for the official March forecast.
“If that shows that the Chancellor’s already thin headroom against her fiscal rules has been eaten up by higher interest payments then she will have to cut her spending plans just five months after the Budget.
“Her decision to increase borrowing by £30 billion a year is looking increasingly reckless.
“An economic strategy born out of the zero-interest rate decade is totally inappropriate for the new world we’re in.”
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After categorically ruling out a return to austerity and a non-negotiable promise to balance the books, Reeves will be praying the OBR projects tangible growth in March to buy her fiscal headroom and breathing space.
If the OBR forecast is bad, Labour may be forced to roll out an emergency mini budget cancelling some of Reeves’ measures in an attempt to win back confidence.
Such a move would destroy Reeves’ credibility and seriously damage her chances of continuing as Chancellor.
It would also be a major blow to Prime Minister Keir Starmer, who said “economic stability is the first step when it comes to growth of our economy” immediately after his election win.
Worryingly for Starmer, the interest rate on 30-year government bonds has hit a 27-year high on his watch.
Both Labour figures have seen their popularity crash in recent months for a string of unpopular decisions.
Commentators have argued the situation is recoverable but have also pointed out the fact markets are more powerful than any politician.
Economic woes have ousted droves of capable leaders throughout history. On March 26, Britain will gain a much clearer understanding of whether Reeves and Starmer will join that list.
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