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(Bloomberg) -- Rachel Reeves has defended her fiscal rules and pledged to bring down government borrowing, as the UK Chancellor of the Exchequer faces dissent from Labour party colleagues opposed to cuts to welfare payments and government spending.
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“When we’re spending £100 billion ($130 billion) a year on servicing government debt, I don’t think anyone could seriously argue that we don’t need to get a grip of government borrowing and government debt,” Reeves said in an interview with Bloomberg TV on Monday. “It is important that there is headroom against the shocks we face.”
Reeves was speaking ahead of her spring statement on March 26, when she’s expected to announce billions of pounds of spending cuts to ensure she meets her key fiscal rule which requires day-to-day spending to be covered by tax receipts. She left herself an historically slim £9.9 billion margin against the target at her budget in October, a buffer that has since been eroded by higher government borrowing costs and lower growth forecasts.
“Those are the right fiscal rules for the circumstances that we face,” she said. “They are a robust set of fiscal rules.”
Net debt stood at £2.78 trillion, or 95.3% of GDP in January — close to levels last seen in the early 1960s. The deficit in the first 10 months of the fiscal year was £118 billion, nearly £13 billion more than the Office for Budget Responsibility forecast in October.
The difficulty of Reeves’s position has led to a clamor among Labour MPs for her to turn to tax increases rather than spending cuts. Reeves has previously said she doesn’t intend to repeat the kind of tax hikes she delivered at her October budget, but, given her strict stance on further borrowing, her hand may be forced if the economic outlook deteriorates further, pushing her into tax increases at the next Budget in the autumn.
Reeves is up against internal pressure from Labour MPs and some Cabinet colleagues to soften her fiscal stance to avoid spending cuts, particularly in the sensitive area of welfare. A reduction in the welfare budget is expected, to stabilize the public finances, with Work & Pensions Secretary Liz Kendall set to unveil plans on Tuesday to cut social security spending by as much as £6 billion to encourage more people to work.