The UK government is grappling with the challenge of maintaining its fiscal rules amid rising borrowing costs. A Treasury spokesperson reaffirmed that the commitment to fiscal rules is "non-negotiable," yet the risk of breaching these rules remains precariously balanced due to the current economic climate. Higher borrowing costs, which have increased since the autumn, are a significant concern, partly fueled by sluggish growth in the UK economy.
Recently, the UK government has found itself spending an additional £7 billion a year on interest payments than at the time of the Budget. While this increase is lower compared to the aftermath of the 2022 mini-Budget, it remains a considerable burden. Borrowing levels have seen a decline after reaching their highest in several years earlier this month. Nonetheless, the rise in interest payments is attributed largely to international factors, as debt levels in the US and Europe escalate.
Chancellor Rachel Reeves faces mounting pressure to adhere to fiscal rules or risk unsettling market confidence. The government aims to stimulate economic growth through infrastructure projects, such as a proposed third runway at Heathrow, while also mandating departments to identify 5% in "efficiency savings" as part of a budgetary review.
Prime Minister Sir Keir Starmer has not ruled out the possibility of additional tax rises. In December, when questioned by the BBC, he emphasized the government's intention to tackle significant fiscal challenges in a single comprehensive Budget.
"If you look at Covid and Ukraine, everyone knows there are things we can't see now, but I can tell you our intention was to do the tough stuff in that Budget, not keep coming back" – Prime Minister Sir Keir Starmer
Economists remain concerned about the government's fiscal rules, especially as borrowing costs continue to rise. The Treasury spokesperson highlighted that tough decisions on spending are being made, particularly through an ongoing spending review aimed at eliminating waste.
"The chancellor has already shown that tough decisions on spending will be taken, with the spending review to root out waste ongoing" – A Treasury spokesperson