The ‘ruthless’ spending cuts that could save Britain from economic disaster

Ahead of the Budget, Rachel Reeves was clear: “There won’t be a return to austerity,”  the Chancellor told BBC Radio 4’s Today programme. “There will be real-terms increases to government spending in this parliament.”

It was a promise she followed through with in her record tax-raising Budget, which increased public spending by £70bn a year .

Fast forward two and a half months, however, and the Chancellor is now under growing pressure to row back on her pledge. Pressure is growing to announce radical spending cuts  to calm financial markets. The prospect of an emergency spring Budget is mounting.

Soaring government borrowing costs have driven up the public debt interest bill by more than £10bn since the Budget, completely wiping out Reeves’s £9.9bn fiscal headroom – the wafer-thin margin by which she was forecast to meet her borrowing targets.

The Office for Budget Responsibility (OBR) is widely expected to slash its growth forecasts for the UK economy  when it revises its outlook for the public finances in March, which will only worsen problems for the Chancellor.

“I would not be surprised if the OBR almost halves its growth forecast for this year,” says Gerard Lyons, the chief economic strategist at Netwealth.

Market moves and OBR revisions could blow a £15bn hole in public finances, says Sanjay Raja, the chief UK economist at Deutsche Bank. This would mean Reeves would be in breach of her fiscal rule  to balance day-to-day spending against tax receipts by a margin of £5bn.

The Chancellor has said meeting her fiscal rules is “non-negotiable”, reiterating in Parliament on Tuesday that she is “absolutely committed to meeting the fiscal rules”. Sir Keir Starmer said at Prime Minister’s Questions on Wednesday: “We had one Budget. That’s what we’re committed to – strong fiscal rules.”