Reeves mulls deeper cuts to public services as borrowing costs soar

London: So, it looks like Rachel Reeves is in a bit of a tight spot. She’s thinking about making some serious cuts to public services to get the government’s finances back on track. This comes after a rough week where investors pushed up the cost of borrowing in the UK, and the pound hit a 14-month low.

Apparently, some government officials have hinted that she might cut departmental spending even more than what was already planned. They’re not looking to raise taxes or borrow more, so it seems like cuts are the way to go. There’s talk of announcing these measures in an emergency statement come spring.

The financial situation in Britain is looking shaky, especially with a big sell-off in the global market for government debt. This has sent the UK’s long-term borrowing costs soaring to levels we haven’t seen since 1998.

Darren Jones, the chief secretary to the Treasury, tried to calm the nerves of investors, saying that the market for UK government bonds is still “orderly.” But, you know how it is—when the markets get jittery, everyone starts to worry.

The Conservatives are pointing fingers, saying the government is burdening the economy with higher taxes and borrowing. They even teamed up with the Liberal Democrats to urge Reeves to cancel her upcoming trip to China.

Economists are sounding alarms too. They warn that these rising borrowing costs could wipe out a £10 billion buffer that Reeves had set aside to meet her fiscal rules. If this trend continues, it could lead to some pretty harsh criticism from the Office for Budget Responsibility when they release their next economic outlook.

Reeves had planned a low-key statement alongside the spring forecasts, but now it seems like she might have to take action if the OBR downgrades the fiscal rules. Jones has been adamant that these rules are “non-negotiable,” and a senior official from Downing Street echoed that sentiment.

Interestingly, Treasury sources say there won’t be any new tax hikes, especially after raising them by £40 billion last year. One source mentioned, “If we have to choose between raising taxes and cutting spending, we will cut spending.”

While Reeves has given most departments a bit more cash for the next couple of years, she’s looking at cuts of over 1% a year for unprotected departments after that. Jones is currently negotiating how much each department will get before the spending review in June, but it sounds like Reeves might have to announce even deeper cuts before then.

After a rough few days in the bond markets, things seemed to stabilize a bit, giving Reeves some breathing room as she prepares for her trip to China. The yield on 10-year UK government bonds had spiked earlier but then fell back a bit.

The pound also took a hit, dropping to a 14-month low against the dollar before settling down slightly. Some investors are comparing this situation to the chaos caused by Liz Truss’s mini-budget, but others think it’s not quite the same.

Overall, with the government under pressure, it seems likely that they’ll have to either raise taxes or cut spending. Some investors expect to see a spring budget that signals greater cuts to government spending, which is causing quite a bit of concern among Labour MPs and economists.

One backbencher mentioned that the fear of further cuts is “massive,” and confidence in Reeves is waning. Another said these cuts could be “brutal” for non-protected departments.

Experts are warning that making more cuts isn’t necessarily the best move. After years of austerity, there’s not much fat left to trim, and further cuts could really hurt people’s lives and the economy.

Some economists are urging Reeves not to let short-term market volatility push her into making significant cuts that could impact long-term spending. However, Downing Street officials have reassured that any new spending reductions won’t reach the levels of austerity that Reeves and Prime Minister Keir Starmer have ruled out.