Reeves alleges budgetary equilibrium, yet exorbitant bond returns suggest a contrasting narrative, asserts Alex Brummer.
The Spending Review Debacle: A Laborspun Disaster
The Chancellor's latest budget jamboree is being hailed by Labors as a pivotal moment for a government haunted by its very own banana skins. It's being peddled as the revival of an ailing nation after fourteen years of Tory chaos. But let's cut the melodrama, it's nothing of the sort.
According to the Institute for Fiscal Studies (IFS), the hype and handouts for favored constituencies barely moved the needle on capital investment spending. In simpler terms, Rachel Reeves maintains capital budgets for science, tech, and other sectors at approximately the same level of national income as her Tory predecessor, Jeremy Hunt.
IFS director, Paul Johnson, drops no punches. He states that if anyone found the Chancellor's speech confusing, so did they. Johnson suggests the spectacle wasn't a genuine attempt to inform the public, but more like a political puppet show.
It lacked the grandiose rhetoric of the nuclear, digital, and biotech revolution that would transform Britain forever. Instead, there was an awakening of the economic theory of securonomics (a term buried since Labors took office) and misleading boasts about the state of the economy.
One might have expected a voice of reason from within the Treasury or behind special adviser doors to steer clear of the G7 comparison trap. The April data might be an anomaly due to Trump tariff uncertainty.
The Government is putting its hopes on the trade accord with the US to revitalize the upmarket carmakers, such as Jaguar Land Rover, Bentley, and Rolls-Royce, and the more eccentric Mini. However, it'll take time for the logistics and supply chains to adapt.
The downturn was partly due to policy changes. The end to stamp duty concessions predictably caused a slump in home sales, despite the good househunting weather and the easing of the bank rate. Taxes do matter, and it's not wise for a government to ignore them as a tool for recovery, especially when it targets those making the first step on the property ladder.
One G7 table that Rachel Reeves didn't mention: the yield on Britain's ten-year bond (gilt) at 4.5% in latest trading is the highest among the rich Western democracies. Markets aren't convinced by the Chancellor's fiscal rules.
The yield on gilts moves in lockstep with those in New York, but there's a flaw in the thinking. Every pound borrowed for a new roundabout or bypass behind the Red Wall comes with high interest rates. The extra borrowing for Labour's £2 trillion capital spend only inflates the current budget further through borrowing charges. This means less money for other pressing matters like education, health, or even an end to the freeze on income tax thresholds that punish hard work and enterprise.
Britain's national accounts don't offer a free pass for capital projects. The IFS analysis suggests that effective allocation and management of investments are essential for tangible improvements in public services and economic outcomes. In essence, it's not just about how much is spent, but how it is spent.
Stocks and investing could potentially benefit from the Chancellor's focus on public spending, as the extra borrowing for capital projects might lead to higher demand for securities. However, the high yields on Britain's ten-year bond (gilts) indicate that the finance market remains skeptical about the government's fiscal rules, which could affect mortgage rates and businesses that rely on loans.
