Rachel Reeves was challenged in the Commons on whether borrowing tens of billions of pounds more would push up mortgage rates in Britain.
The Chancellor is expected in the Budget on Wednesday to ease her debt fiscal rules to borrow some £20 billion extra to fund transport and other infrastructure projects to boost economic growth in the UK.
However, the move has sparked warnings that borrowing more could put upward pressure on interest rates which would feed through into increased mortgage bills.
As Ms Reeves and her team took questions in the Commons the day before the Budget, shadow Treasury minister Alan Mak said: “Last Wednesday in Washington, the Chancellor announced changes to the debt rules to allow Labour to borrow more.
“However, published Treasury advice says that increasing borrowing risks interest rates staying higher for longer.
“Does the Chancellor agree with her Treasury civil servants?”
Ms Reeves responded: “I was very pleased that last week when I was in Washington, the International Monetary Fund said how important it was that countries including the UK borrow to invest in our capital infrastructure.
“Under the plans that we inherited from the previous government, capital spending as a share of GDP is due to fall from 2.6 per cent of GDP to 1.7 per cent.
“If those decision were to go forward, it would mean plans delayed and cancelled.”
Shortly afterwards, MPs had a brief debate on Ms Reeves’ decision to announce the change to the fiscal rules in Washington, in the US, where she was attending a meeting of the International Monetary Fund, rather than to Parliament.
But Health Secretary Wes Streeting, on the morning media round for the Government, defended his Cabinet colleague by arguing that the fiscal rule announcement had to be made days before the Budget to avoid spooking the markets, especially after the disastrous “mini Budget” in autumn 2022 by Liz Truss and Kwasi Kwarteng.
Ms Reeves is expected to seek a package of £40 billion of tax rises and some Whitehall departmental savings, to fix what she says is a £22 billion black hole in the public finances which she alleges the Tories left, a claim they deny, and also to invest in the new Labour government’s priorities including the NHS.
Tax rises, many of which will hit London hard, could be on National Insurance for employers, capital gains tax, inheritance tax, fuel duty, with possible changes to stamp duty, and council tax continuing to go up by five per cent a year, far higher than inflation.
Billions of extra pounds will be ploughed into the NHS, including for more scanners, to deliver 40,000 more appointments a week and cut waiting lists.
However, he insisted the extra funding would have an impact and that waiting lists, currently at more than 7.6 million, would start to “tumble” and to be millions lower within years.
