Rachel Reeves’ deputy sought to reassure the markets that Labour’s £32 billion borrowing in the Budget was not excessive, stressing: “We have all got PTSD from Liz Truss”.
Darren Jones, Chief Secretary to the Treasury, emphasised that on borrowing the Government does not “think that we are pushing it to the limit”.
Markets appeared to be holding their nerve early on Friday with the yield on 10-year and 30-year gilts nudging up slightly, but not dramatically, to 4.477% and 4.913% respectively, a far cry from the economic hysteria after the “mini Budget”.
Mr Jones insisted that the current situation was a “very, very different world” to after Ms Truss and her Chancellor Kwasi Kwarteng’s “mini Budget” in September 2022 which saw economic meltdown in Britain.
As markets pushed up the cost of borrowing after the Budget on Wednesday, Mr Jones downplayed the prospect of a repeat of the economic mayhem.
“We have all got PTSD from Liz Truss,” he told Sky News.
“Let’s compare the two different scenarios because they are very, very different.
“Under Liz Truss as we saw, they sacked the Permanent Secretary (top civil servant at the Treasury), they ignored the independent Office for Budget Responsibility, they announced £45 billion of unfunded tax cuts and said they were only just gettting started.
“Then, the market went mad and we all know what happened.
“Completely, different in contrast to now.
“We have got verified reports from the independent Office for Budget Responsibility that say we meet our fiscal rules earlier than had been planned originally, 2027/28.
“Those tough fiscal rules mean there is a fiscal consolidation and our strong approach to public spending.
“We are in a very, very different world.”
Pressed if there could be another big increase in borrowing next year, he added: “We think this is the right approach to borrowing and spending in the country, along with our tough fiscal rules.
“We do not think that we are pushing it to the limit.
“But we are going down a different path which is investing once again in the country’s infrastructure.”
The Budget increased state spending by almost £70 billion per year, a little over 2% of gross domestic product (GDP), funded by increased taxes, which Ms Reeves has admitted will hit workers pay, and borrowing.
The scale of extra borrowing saw yields on government bonds increase as the market responded to the Chancellor’s plans.
Ms Reeves has played down the impact, saying that “markets will move on any given day” and sought to offer reassurance of her commitment to “economic and fiscal stability”.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), had warned that the “implausibly low spending increases” in the Budget meant there was a risk taxes would have to rise again if the economic growth Labour is depending on does not materialise.
The International Monetary Fund (IMF) endorsed the investment and spending on public services in the Chancellor’s Budget, as well as sustainable tax rises.
In an unusual move, the Washington-based watchdog said: “We support the envisaged reduction in the deficit over the medium term, including by sustainably raising revenue.”
But the verdict of the IMF appeared not to reassure financial markets.
The yield - or interest rate - on a 10-year gilt, an indicator for the cost of state borrowing, hit 4.568% on Thursday afternoon, the highest point since August 2023, while the pound also weakened against the dollar.
The main tax rise in the Budget was the £25.7 billion change to employers’ NICs, although the actual amount of money raised for the Treasury will be around £16.1 billion by 2029/30 as firms curb wage rises, cut hours and reduce profits while public sector employers get compensation in their budgets for the change.
Economics experts branded the increase a “tax on working people” which will “definitely” show up in their wages.
The tax hikes and increased borrowing allow Ms Reeves to provide a £22.6 billion increase in the day-to-day health budget as well as a £3.1 billion increase in the capital budget, aimed at buying new equipment and building new hospitals.
