Chancellor won’t rule out huge borrowing after spending £1bn a day in three weeks

Rachel Reeves has refused to rule out changing debt rules that would allow billions of pounds of extra borrowing, having already spent billions on new pledges.

Currently, the Government has a fiscal rule to have debt falling as a share of the economy in five years.

The rule is based on “debt excluding the Bank of England”, but moving to a target of “public sector net debt” would change this.

It follows Labor announcing billions in spending commitments in its first three weeks in government, despite saying there is a £22 billion “black hole” in the public finances.

In a recent interview with The Telegraph, Jeremy Hunt, the shadow chancellor, said he suspected that Labor would “fiddle” with the borrowing rule “so that they can end up increasing debt”.

When asked about the easier debt target in November, Ms Reeves said she was “not going to fiddle the figures to make something to get different results”, pledging to “use the same models the government uses”.

However, she did not respond when Mr Hunt challenged her in the House of Commons last week on whether she would make the change.

Mr Hunt asked: “For someone who continuously claims the mantle of fiscal rectitude, will she confirm that in order to pay for her public spending plans, she will not change her fiscal rules to target a different debt measure, so she can increase borrowing and debt by the back door?”

‘Extra spending headroom’

Andrew Goodwin, chief UK economist at Oxford Economics, told Bloomberg that he has expected the Government to change the definition in the October Budget “because they need the extra spending headroom.”

Ms Reeves has claimed that the previous government left a vast gap in the public finances and admitted last week that Labor would have to “increase taxes” in the Budget as a result.

But Mr Hunt told The Telegraph that the Chancellor’s claims about Labour’s economic inheritance were contradicted by the fact that the Government had announced about £1 billion a day in new public spending since taking office.

Since July 5, Labor has announced £8.3 billion on the new public energy company, GB Energy, £7.3 billion on a National Wealth Fund and around £10 billion on public sector pay settlements.

Mr Hunt said: “This new Labor Government has spent £25 billion in 25 days, and still then wants you to accept their spurious claims about the state of the public finances.

“Being in government requires making difficult decisions but it also requires honesty – with voters and with taxpayers.

“So it is simply not acceptable for this Chancellor to invent a fictitious black hole and then raise taxes in order to pay for an economic agenda she refused to reveal in the campaign – and the British public will not forget it.”

Ms Reeves announced a number of changes last week to cut costs, including scrapping winter fuel payments for around 10 million pensioners in England and Wales who are not on pension credit or other means-tested benefits.

A planned cap on social care costs has also been axed, and she canceled a string of infrastructure projects including the Stonehenge tunnel, the A27 bypass and Boris Johnson’s plan to build 40 new hospitals in England by 2030.

The Government has also canceled more than £1 billion in funding for supercomputer projects announced by the Tories.

Delivering her public spending statement to MPs last week, Ms Reeves said: “I am calling out the Conservatives’ cover-up and I am taking the first steps to clean up what they have left behind, but the scale of the inheritance we have been left means that the decisions we have so far announced will not be enough.

“This level of overspend is not sustainable. Left unchecked, it is a risk to economic stability—and unlike the Conservative party, I will never take risks with our country’s economic stability.”

She said the Budget would “involve making difficult decisions to meet our fiscal rules across spending, welfare and tax”, but promised that it would “fix the foundations of our economy” to “rebuild Britain and make every part of our country better off” .

The Treasury was contacted for comment.