Debt payments skyrocket as the Chancellor borrows more
Changing the Rules: Rachel Reeves
Labor will spend an extra £17.5 billion on debt repayments over the course of this parliament after Rachel Reeves changed borrowing rules, Goldman Sachs has predicted.
The Chancellor will use a different debt measure to borrow up to an additional £50 billion for extra investment – while still meeting the target of reducing debt within five years.
Reeves’ goal is to stimulate growth, but those effects will take time and loans will rise in the short term, Goldman’s experts emphasize.
Interest payments will also increase due to a slightly higher-than-expected movement in Bank of England interest rates than forecast in the March spring budget.
According to the analysis, this means a ‘slightly higher forecast for interest costs’ for the rest of this year. The model assumes annual interest payments to average around £3.5 billion higher over a five-year period.
Reeves is expected to get a boost when Britain’s annual growth forecast is upgraded from 0.8 percent to 1 percent on Wednesday – but has been warned she risks squandering it by raising taxes.
Britain had the best growth in the G7 in the first half of this year – defying the doom and gloom of Labor ministers including Reeves.
Investec economist Philip Shaw said: ‘We are skeptical of Reeves’ claims that Labor has inherited the worst economic legacy since the Second World War. It cannot be said that the economy is in worse shape than it was in 2010, when the Western world was stuck in the aftermath of the global financial crisis.’
Reeves has said the new government will be “the most pro-growth” Britain has ever seen.
But businesses fear that ambition will be undermined by her plans to announce a series of tax increases in the budget.
Research from Lloyds shows that business confidence has fallen to the lowest level in four months. It follows surveys showing that confidence among businesses and households has fallen, despite Labor’s statements. The fear of tax increases has also taken its toll.
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