Reeves has ‘no billion pounds’ before having to find public spending cuts
If you remember in October in the budget, Rachel Reeves set herself very tough limits on borrowing.
She can’t borrow for day-to-day spending from 2029. She’s got to reduce the amount this government borrows.
But she also spent right up to the limit and borrowed right up to the limit, leaving herself historically low – what’s known as headroom – just under £10bn.
And since then, growth has been worse. Borrowing costs have been higher. All of which means that she’s going to have to do more borrowing than she predicted in October.
But she’s got almost no room before she breaches her fiscal rules.
The Treasury believes that the minimum headroom that they’ve got to have at the end of this process will still have to be £10 billion or so.
That’s historically low as it is. You can not just allow that headroom to be eroded away by higher borrowing because of lower growth and high borrowing costs.
So in other words, for every billion of additional borrowing that the OBR thinks she’s going to have to do, taking it closer or over her limit, she’s going to have to find spending cuts, possibly welfare cuts.
It is not the case that she’s got £10bn before there’s a problem. She’s got no billion pounds before she starts having to find public spending cuts.
Because they don’t want the headroom to get any smaller than it is at the moment.
I have also noticed this over the last few weeks that Downing Street is fully invested in making Reeves look good at all points, whether it’s on defence spending or if it’s on the general government narrative.
Number 10 is absolutely doing everything it can to improve Reeves’ standing because she’s had a much rockier time than anyone expected.
The numbers are the numbers. She’s good in the Commons chamber, but the fundamentals aren’t great.
Number 10 is very invested in her because there cannot be any division between Starmer and Reeves.
If something hurts Reeves, it just hurts Starmer as well because he’s subcontracted so much to her.
