Homeowners will face higher mortgage bills for longer if Rachel Reeves goes on a borrowing spree of tens of billions of pounds to fund investment in Britain’s infrastructure, Jeremy Hunt is warning.
The former Chancellor accused his successor of “fiddling with her fiscal rules” to allegedly borrow up to £50 billion.
His comments came as Ms Reeves confirmed she is set to partially ease her rules on borrowing in the Budget on October 30 when she will also announce a series of tax rises, many of which could hit London hard.
She was reported to be seeking to find around £20 billion a year for major transport and infrastructure projects to try to boost the UK’s economic growth which has been miserly in recent years.
Ms Reeves, at a meeting of the International Monetary Fund in Washington, told The Financial Times that her fiscal rules would “make space for increased investment”.
But the cost of Government borrowing increased on Thursday following the speculation that Ms Reeves would change debt rules to spend billions more on investments.
The prospect of tens of billion in extra state borrowing sent gilt yields up by as much as eight basis points on Thursday.
It is thought this could see the Bank of England rein in cuts to interest rates, impacting UK gilts by sending prices lower, which conversely causes its yield to rise.
Gilts were also said to be under pressure after Bank governor Andrew Bailey said on Wednesday that there were still questions over whether elements of inflation may remain stubborn in the economy.
Labour’s 2024 election manifesto said Ms Reeves would follow two rules: The current budget would be in balance so that day-to-day costs are met by revenues.
The second rule is that debt must be falling as a share of the economy by the fifth year of the economic forecast.
Writing in The Financial Times on Thursday, Ms Reeves said: “My fiscal rules will do two things. The first and most important: my stability rule will mean that day-to-day spending will be matched by revenues.
“Alongside tough decisions on spending and welfare, that means taxes will need to rise...”
She added: “My second fiscal rule, the investment rule, will get debt falling as a proportion of our economy.
“That will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.”
But the Tories claimed that homeowners would be left facing higher interest rates for longer on their mortgage bills because of the changes.
Shadow Chancellor Mr Hunt said: “Today Rachel Reeves announced her plans to fiddle with her fiscal rules and borrow up to £50 billion more to fund further reckless spending.
“Let me clear; the advice I received consistently whilst Chancellor was that any additional borrowing would mean higher interest rates for longer.
“Meaning if the Chancellor goes ahead with £50 billion of extra borrowing there will be misery for millions of mortgage holders across the country.”
Mr Hunt became Chancellor in autumn 2022 after Kwasi Kwarteng’s disastrous “mini Budget” which sparked economic chaos, sent the Pound falling in value and the cost of borrowing spiralling, and ultimately led to the downfall of the brief Liz Truss premiership.
A Labour source said: “Labour will not take any lectures from the Tories on how to run the economy. It was Liz Truss and the Conservatives that crashed the economy, which sent mortgages soaring and left the British people worse off.“
Ms Reeves is expected in the Budget to increase National Insurance for employers, capital gains tax, freeze the thresholds for paying income tax for another two years, raise more from inheritance tax, and make changes to stamp duty.
The bond market reaction on Thursday could also have been influenced by comments from Mr Bailey, who suggested that inflation is coming down faster than expected during an appearance in Washington.
