Labour MPs, anxious about what Chancellor Rachel Reeves has in store at her Spring Statement next week, keep talking up Berlin’s changes to its borrowing rules as the way to get through the thorny thicket of increased defence spending at the cost of slashing the welfare bill and foreign aid.
On Friday Germany’s upper chamber of parliament, the Bundesrat, voted in favour of a massive financial package that will pour billions of euros into defence, infrastructure and climate protection. It was confirmation of a decision by the lower house, the Bundestag, earlier this week which approved an historic amendment to its constitution to allow unprecedented levels of government expenditure. It’s a move that’s been watched with jealousy in London by Labour MPs who want Reeves to increase borrowing.
But the exasperation expressed by the Labour MP at high-ranking Government officials is mutual.
The UK’s public sector net liability was 95.3 per cent of GDP, where Germany’s stands at 63 per cent. Reeves is understood to be keen not to take on new loans without a clear plan to pay for it.
An rise in UK borrowing costs of only 0.25 per cent would cost the Government £4bn more a year in debt interest.
“Turning the economy around is not an overnight fix, it takes time and discipline. We are absolutely serious about creating a more productive economy. There’s not a lot we can do about global trade tariffs, but we are going to make Britain’s economy as strong and efficient as possible,” a No 10 source told The i Paper.
The fictional magic money tree – so beloved of former Labour leader Jeremy Corbyn’s brand of opposition politics – has, spring like, burst into bud again. Also dangling from its branches is the nebulous blossom of wealth taxes. It’s a suggestion that comes up with wearying regularity by the socialist wing of the Labour Party as if the 2019 general election defeat never happened.
Reeves won’t raise taxes in next Wednesday’s Spring Statement, even as the Conservatives try to claim she is preparing an “emergency Budget”. Instead, public spending reductions through a combination of welfare cuts and savings to the planned budgets of Whitehall departments will be used to rebuild adequate headroom against her fiscal rules.
Labour MPs and activists need to find someone to blame, and Reeves is the grown-up in the room.
square KITTY DONALDSON
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Read MoreEven former Labour prime minister and chancellor Gordon Brown, the self-proclaimed architect of fiscal prudence, was forced to break his own rules during the financial crisis of 2008. During the Covid-19 pandemic then chancellor Rishi Sunak suspended the fiscal rules and nobody argued at the time it was the wrong decision.
If in doubt about the strength of your case to break the glass and abandon the fiscal rules, how about invoking the ad Nazium argument and comparing your present situation to the 1930s?
But Reeves already changed the fiscal rules at October’s Budget to borrow an additional £140bn over five years to invest in infrastructure and public services.
“The thing about the fiscal rules is that their half-life is shrinking. They last less time every time they’re invoked by a new chancellor. Gordon was the first to break his own rules and then they’ve lasted less long for every chancellor since. But the idea that she’s going to change them in the first year is nuts. You could argue the fiscal rules were a bit tight in first place, and we left ourselves in a tight spot which is suddenly a conversation going around the tearoom. But once she’s got to this point, you know, that’s a valid position whether you agree with her or not,” the MP told The i Paper.
There’s also the character of Reeves herself to consider.
Labour MPs will have to stick to taking lessons from Germany’s football players, not its politicians.
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