Public Finances: Borrowing Costs

(Urgent Question): To ask the Chancellor of the Exchequer if she will make a statement on the growing pressure of borrowing costs on the public finances.

Where is she?

I am always grateful to see Conservative Members welcome me to the House.

Financial markets are always evolving, as the shadow Chancellor knows, so there is a long-standing convention that the Government do not comment on specific financial market movements, and I will not break that convention today. Financial market movements, including changes in Government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors. It is normal for the price and yields of gilts to vary when there are wider movements in global financial markets, including in response to economic data.

In recent months, moves in financial markets have been largely driven by data and global geopolitical events, which is to be expected as markets adjust to new information. UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well-diversified investor base. The Debt Management Office’s gilt sales operations continue to see strong demand. The latest auction, held yesterday, received three times as many bids as the amount on offer.

The Chancellor has commissioned from the Office for Budget Responsibility an updated economic and fiscal forecast for 26 March incorporating the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy, and I will not pre-empt that forecast. There should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

May I end by saying that I am pleased that the shadow Chancellor is holding this Government to account on our stewardship of the economy? It is important that he does so. He will remember when his party crashed the economy with unfunded tax cuts, unrealistic public spending plans and a clear disregard for the consequences on family finances. Families across the country are still paying the price for the Conservatives’ disastrous performance on the economy through higher mortgages and bills. If there was one clear reason why the Conservative party suffered such an historic defeat at the last general election, it was their performance on the economy. That is presumably why the shadow Chancellor himself admitted in December that the lack of trust in the Conservative party’s management of the economy has left a “deep and painful scar” in the pockets of every person across Britain.

Let me tell the House what has changed. In our first six months, this Labour Government have exposed the £22 billion black hole in the public finances. Not only have we exposed it, but we have dealt with it: the Chancellor’s autumn Budget protects working people, wipes the slate clean of the mess the Conservative party left the country in, and invests in our NHS and schools. We have given the independent Office for Budget Responsibility enhanced powers of oversight, in law, so that we never again get into the situation where that lot left the country: a £22 billion black hole in the public finances. We have set tough new fiscal rules that are non-negotiable, with a budget settlement for public services that they must all live within. We have kick-started growth in this country—this Government’s No. 1 mission —by unlocking investment and bringing forward reforms, such as those to planning and in the Mansion House speech.

I call the shadow Chancellor of the Exchequer.

The performance we have just seen was a slightly anxious and breathless one, which leads me to the question: where is the Chancellor? It is a bitter regret that at this difficult time and given these serious issues, she herself is nowhere to be seen.

In the last 48 hours, borrowing costs have reached a 27-year high, and it is the Chancellor’s decisions that have led us here. Before the election, the right hon. Lady promised that Labour would get debt falling, would not fiddle the figures, would not raise taxes and would grow the economy, but the economy is now flatlining. Survey after survey is showing that business confidence has simply evaporated, and at the Budget, the Chancellor hiked up taxes, increased borrowing by an average of £32 billion a year across the forecast, and conveniently adjusted her fiscal rules to allow her to do so.

Higher debt and lower growth are understandably now causing real concerns among the public, among businesses and in the markets, and despite what the Chief Secretary has said about international factors, the premium on our borrowing costs compared with German bonds recently hit its highest level since 1990. With those rising costs, regrettably, the Government may now be on course to breach their fiscal rules. The Chancellor has committed to no further tax rises, so does the right hon. Gentleman stand by her commitment not to increase taxes even further? If so, does that mean that the public should expect cuts to public service spending if the OBR judges that her fiscal headroom has evaporated?

There are media reports that the Chancellor will make an emergency intervention to soothe markets, but with no confirmation that such a statement will occur in this House. Will the right hon. Gentleman confirm that any such statement will be made first to Members in this House? Rates on Government bonds ultimately feed through to the broader credit market, so what estimates has the Treasury made of how recent market movements will impact mortgage costs and lending across the economy?

I am pleased that the right hon. Gentleman enjoyed my performance—I have not even had my first cup of coffee yet this morning. Let me answer some of his questions. [Interruption.] Conservative Members might like to listen, if the questions are so important to them.

The right hon. Gentleman asked me about the fiscal rules. As I said in my statement, those rules are non-negotiable. As the Chancellor set out at the Budget, we have two fiscal rules: first, that day-to-day spending should be met by tax receipts, and secondly, that debt should be falling as a share of the economy.

The right hon. Gentleman talked about the debt burden that this country has. Maybe we should reflect a little on why we have so much debt—[Interruption.] From pre-pandemic, Mr Speaker. Let us look at the burden of debt inherited by this Government from the Conservatives. From 2010 onwards, why did the last Government have to borrow so much money every single month, not just to invest but to pay the day-to-day bills? Because of an absolute failure to get growth into the economy. They could not make the numbers add up. They stacked up the country’s credit card and left it to the Labour party to deal with, and we are going to deal with it. That is why those fiscal rules are non-negotiable, and it is why public spending will be within the numbers set out at the Budget.

We are starting the spending review now, and it will conclude in June. Public services will have to live within their means—the Chancellor has been very clear about that. That is why with this Government, you get economic stability and absolute clarity on public spending. That is why the British people trust this party and booted that lot out of office.

I call the Chair of the Treasury Committee.

We all know that fiscal rules and certainty are vital for the markets and the good stewardship of the public finances, so will the Chief Secretary to the Treasury explain what process he will be going through as he conducts the spending review, and what notice he will give to Departments about extra cuts that they may have to make in order to meet the fiscal rules? In addition, when the Chancellor comes in front of the House for the OBR forecast in March, will she be making a fiscal statement at that point?

I thank the Chair of the Select Committee for her question. As the House knows, we have started the second phase of the spending review, to set public sector budgets from 2026-27 onwards. The Chancellor confirmed in a written ministerial statement before the House rose for Christmas that there will be a forecast from the OBR and a statement on 26 March. As I said in my response, that will be the next time the OBR will give a view about the UK economy and the levels of funding for public services. Between the OBR forecast in March and the conclusion of the spending review in June, the House will be updated in the normal way.

I call the Liberal Democrat spokesperson.

I recognise that the Chancellor has a very difficult job. She inherited an economy on its knees, following the Conservatives’ mismanagement of the economy, from their terrible trade deal—[Interruption.] That extends from their terrible trade deal with Europe, which is holding back businesses in Wokingham, to soaring inflation, stagnant growth and the Liz Truss mini-Budget, which hit so many mortgage holders across the country.

However, the Government seem to be repeating some of the same mistakes. Last night, the Treasury issued a statement saying that

“meeting the fiscal rules is non-negotiable”.

Will the Chief Secretary reassure this House that protecting the NHS and care is also non-negotiable, and will he rule out any cuts to those services as the Government try to balance the books? Will he work to repair our ties with Europe and cut trade-related red tape, especially in the face of Donald Trump and his oligarch allies such as Elon Musk?

I thank the hon. Member for his question. He will note from the Prime Minister’s plan for change that the NHS is the subject of one of this Government’s key commitments, with commitments to get the elective waiting list down and to invest in the national health service so that we can do so. He will have heard that from the Chancellor at the Budget in the autumn, and he will see that it is a continued commitment from this Government. We can do that because of our commitment to the fiscal rules and because of our investment to grow the economy, which is the only route to long-term, sustainable public financing.

The hon. Member was very rudely groaned at by Conservative Members, but when it comes to their performance on the economy, it is not they who should be groaning, but the British people who should be groaning at them for what they did to their family finances.

US bond rates are rising as well as those in the UK, with higher than expected inflation and interest rates. I note that Conservative Members have not mentioned that; perhaps they have not looked. The best way to make our debt sustainable is to invest to get growth growing, and to get expected inflation down by investing in clean energy. Does the Minister agree that our plans to invest in growth and in lower-price, cleaner energy is exactly the way to make our debt sustainable?

My hon. Friend knows very well that this Government’s approach has been about stability, investment and reform: the stability we have brought following the chaos of the years under the Conservative party, as has been recognised by the British people and by the markets; the investment we have been unlocking, from our global investment summit all the way through to the work we have been doing in the Budget and since; and the reforms we are bringing forward—for example, planning reform—to make sure we can deliver infrastructure better in this country and unlock the investment that private capital has wanted to put forward in the UK for many years, but could not because of the chaos from the Conservatives when they were last in government.

I call the Father of the House.

On 6 November, the Chancellor said:

“We have now set the envelope for spending for this Parliament, and we are not going to be coming back with more tax increases or, indeed, with more borrowing.”

I am sure, because the Chancellor is an honourable lady, that she will not be opening that envelope, putting her sticky fingers inside and coming out with more borrowing or tax increases. Will the Minister give an absolute assurance of no more tax increases or borrowing?

I can absolutely assure the Father of the House that we are working through this spending review on the basis of the envelope set at the Budget. Public services will have to operate within the means that we are providing to them. The OBR forecast will come in March, which will give us the latest set of information, and we will work to that with Departments. This is why we have set up organisations such as the Office for Value for Money, why we have set tough productivity and efficiency targets for Departments and why we are investing in, for example, technology to improve the productivity of the public services we provide. Public services must live within their means, as set out in the Budget, and that is an absolute guarantee from this Government.

I thank the Chief Secretary for his response. I have just sat through Transport questions, or some of them, during which I repeatedly heard calls for more spending from Conservative Members, but they oppose every single tax rise to pay for that spending. Does the Chief Secretary agree that one of the lessons from global developments in recent days is that we must pay for day-to-day public spending through tax rises, however tough that is?