Rachel Reeves is facing tough decisions as she prepares to rethink the strict fiscal rules she introduced to protect the government’s economic credibility.
These rules were designed to avoid the kind of market chaos seen during Liz Truss’s time in office by promising that public finances would be balanced or in surplus by 2030.
The idea was simple: day-to-day government spending would be funded through taxation, not borrowing.
But recent figures suggest that this plan might be under serious pressure.
Borrowing Hits Record Levels Outside Pandemic Times
Last month, government borrowing shot up to £20.2 billion — well above the expected £17.6 billion — marking the highest borrowing outside of the Covid crisis.
This surge was largely caused by rising public sector wages and increased spending on benefits and state pensions.
On top of that, Labour leader Sir Keir Starmer’s recent decision to reverse cuts to winter fuel payments means even more costs for the Treasury.
The government also faces pressure to scrap the two-child cap on child benefits, as well as fund inflation-related pay increases for teachers and doctors.
Fiscal Rules Could Be Overhauled in the Autumn Budget
The much-talked-about ditching of the fiscal rules is expected to be officially announced during the autumn Budget.
Insiders suggest that the winter fuel payment reversal was a first step in preparing the public and parliament for this shift.
One source explained, “The winter fuel announcement was part of preparing the ground to shift on the fiscal rules.”
Another added, “The fiscal rules will go. I was in the room when it was discussed. They will be changed.”
Growing Doubts About Rachel Reeves’s Political Future
Within Labour circles, doubts are growing about Rachel Reeves’s ability to steer the economy successfully.
Some MPs are openly talking about her political future, saying that if the economy doesn’t improve by the next Budget, she might have “run out of road.”
Her position has been weakened by recent controversies, including criticism over free concert tickets and accusations of embellishing her CV.
Plus, last year’s Treasury move to increase employers’ National Insurance contributions by £25 billion hasn’t helped business confidence or economic growth.
In fact, it’s contributed to rising borrowing costs.
Rachel Reeves Feeling the Pressure and Seeking Support
A minister close to the Chancellor described how she’s been rattled by the backlash to her economic policies.
“Rachel has been badly shaken by the backlash against her strategy,” the minister said.
“She’s started to feel isolated so she’s ringing colleagues asking what they think she needs to do and what programmes they want her to implement.”
Critics Warn Labour Could Lose Economic Credibility
Shadow Chancellor Mel Stride has been vocal in his criticism, warning that Labour’s economic credibility, already fragile, will be “in tatters” if the fiscal rules are abandoned.
He accused Reeves of being less of a firm, principled “Iron Chancellor” and more of a “Tinfoil Chancellor” who bends to pressure rather than standing her ground.
Stride said, “Fiscal rules are the foundation of economic trust.
If the Chancellor can’t stick to her own rules, how can the British people trust her with the nation’s finances?”
No Easy Options Left for the Chancellor
The Chancellor faces a tightrope walk. She’s already raised taxes to high levels and borrowed heavily, yet economic growth remains sluggish.
Folding on the fiscal rules could add further risks at a time when the country can ill afford more uncertainty.
As one critic put it, “Rachel has massively mismanaged the economy.
Given what she’s already done, she’s running out of options, and giving up on the fiscal rules will be another gamble the country can’t afford to take.”