The chief secretary to the Treasury has hinted that “tough decisions” on spending will be required as the government grapples with high borrowing costs.
The chancellor, Rachel Reeves, is battling to meet her fiscal rules after a surge in the cost of borrowing, fuelling speculation of more cuts and/or tax rises.
Recent market moves have seen Reeves’ £10 billion of fiscal “headroom”, allowed for in the autumn budget, squeezed significantly. The chancellor has also appeared to rule out further tax rises, telling the Confederation of British Industry (CBI) conference in November last year that she would not be “coming back” for more.
Speaking to BBC Breakfast on Wednesday morning, Darren Jones said: “There’s a lot happening globally and as ministers we don’t give a running commentary on the market, because we take the price in the market, we do accept the price in the market.
“But there’s no denying that this government inherited an economy from the Conservatives that had a high amount of debt and low growth and that’s why we have got non-negotiable fiscal rules where under this government, day-to-day spending for public services must be met by tax receipts, not by borrowing.
“People at home know you can’t just keep borrowing every month to pay the bills. And where we do borrow to invest in the country’s infrastructure, the debt has to be falling as a size of the economy over the next five years.
“Those fiscal rules are non-negotiable. That means there are tough decisions for the chancellor and this government to take.”
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John McDonnell, who served as shadow chancellor from 2015-2020, has argued that imposing cuts to create further fiscal headroom wiped out by recent market shifts would be “politically suicidal” and undermine the support on which Labour got elected.
The government must “see through” the market turbulence, he told BBC Radio 4’s Today programme on Wednesday.
Jones’ comments came after inflation fell to 2.5 per cent in December, in a boost for the government. In November, the Consumer Prices Index (CPI) came in at 2.6 per cent.
While the figure is still above the Bank of England’s 2 per cent target, Michael Saunders, a former external member of the Monetary Policy Committee, suggested that the data will be welcomed with a “sigh of relief” in government.
Saunders told BBC Radio 4’s Today programme: “I think you can hear a sigh of relief coming out from Downing Street, Bank of England and across financial markets as a whole.
“To be sure, inflation is a little bit above the 2 per cent target, but markets have been expecting today’s figure to be stable or higher, and it came in a little lower than expected, with services inflation, which the Bank of England is closely focused on quite sharply lower than the previous month.
“So this will do some help, I think, in trying to ease some of the worries about the outlook for UK interest rates.”
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