By William James
LONDON (Reuters) – Britain’s Labour government is banking on its new system of spending watchdogs and public advisory bodies to reassure markets that the country can borrow more money to spend on infrastructure without blowing the budget.
Finance minister Rachel Reeves will on Oct. 30 deliver her first budget since Labour’s landslide election win in July, seeking to balance the need for day-to-day spending cuts with a desire to invest more money in long-term capital projects.
Ahead of that, some investors are taking a more cautious approach to holding British government bonds, waiting for details on how much money Reeves will look to borrow and how it will be spent.
Reeves had previously said she would introduce “guardrails” to reassure investors, without providing further details.
On Friday, Treasury minister Darren Jones said a watchdog would be tasked with making sure government spending delivered value for money and a separate body would advise on the benefits of infrastructure investments.
“We need expert, institutional and some independent guardrails to make sure everybody has confidence in the way that the government is spending taxpayer money,” Jones said.
“What I’m confirming today is we put those in place for capital investment and infrastructure delivery.”
Later on Friday Reeves will convene a British Infrastructure Taskforce – another new initiative designed to keep private investors onside and encourage them to invest in step with the government.
DEBT DEFINITION
Markets’ main focus is on how Reeves will change the official definition of public debt to allow her to borrow more while keeping to the letter of a pre-election promise to lower debt as a share of national income.
Earlier this week, global asset manager PIMCO said it thought the outlook for its debt was more positive than financial markets appeared to believe.
But, with a range of different ways to do this, estimates vary widely on how much more borrowing Reeves will add to Britain’s already debt-laden economy.
The government has a stark and recent example of what can happen if they get it wrong.
In 2022 Conservative finance minister Kwasi Kwarteng set out a big unexpected rise in borrowing that sent markets into a tailspin, causing a spike in mortgage rates for many Britons and ultimately putting him and his prime minister, Liz Truss, out of a job.
(Reporting by William James and Kate Holton;Editing by Elaine Hardcastle)
