She’s only been in the job six months, and she’s already wreaked havoc. Today brings yet another example of how she’s throwing taxpayers’ money away.
A cool £6.4billion of it.
That’s on top of the billions she’s already destroyed by bringing UK growth to a standstill by talking down the UK economy then unleashing the most brutal Budget in more than three decades.
Today has brought even worse news.
Her Budget is driving inflation back up, as companies pass the cost of her brutal £40billion of tax hikes onto consumers. Her £30billion extra spending splurge will throw further fuel onto the inflationary fire.
Before the Budget, the Bank of England was expected to cut interest rates four times this year. Now it will cut twice at most, as it battles to curb the inflation Reeves has whipped up.
That’s driving up interest rates and crucially – the amount we have to pay to service the interest on our massive £3trillion national debt.
We fund our borrowing by issuing government bonds, known as gilts. To attract buyers, we pay them interest, known as the yield.
The higher the yield, the more gilts cost us.
Which is terrifying because this morning yields shot past 4.64%.
When they hit 4.22% after the Liz Truss mini-Budget fiasco, Truss collapsed like a wet lettuce. Yet Reeves clings on even though they’re higher today.
Incredibly, Reeves plans to issue another £300billion of gilts this year to fund spending.
Rising yields mean we’ll pay another £6.4billion in extra interest. That’s on top of the £102billion a year we already blow.
This will cost taxpayers billions that could have been better spent elsewhere. And it leaves Rachel Reeves on a knife edge.
The UK is borrowing to the max. That didn’t stop Reeves from rewriting the fiscal rules to borrow an extra £57billion to invest in infrastructure.
This leaves her with almost no margin for error. In November, I said she had just £10billion of fiscal headroom. If she gets her sums wrong, and she often does, we’ll run out of money.
Andrew Goodwin of Oxford Economics now reckons her fiscal headroom has shrunk to just £3.5billion, according to The Daily Telegraph.
If gilt yields rise higher, that headroom could disappear altogether.
Of course the UK won’t actually run out of money. Rachel Reeves can always tap into her personal magic money tree. It’s called the taxpayer.
If growth continues to slide and bond yields rise, she’ll hike taxes again in the autumn. And that black hole will be even deeper and harder to plug.
Plus we’ll be paying even more to borrow money, as bond markets lose faith in the UK.
