Rachel Reeves’s disastrous mishandling of the thriving economy she inherited from the Tories means the UK is heading for a full-blown financial crash – and nothing can stop it now, says Matthew Lynn in the Telegraph. Here’s an excerpt.
In total, we borrowed a shocking £151.9 billion over the last 12 months, £20 billion more than the previous year, and much more than the Office for Budget Responsibility had forecast. Last month alone, we racked up another £16.4 billion in debt, the third highest March figure since records began.
In reality, the turmoil triggered earlier this month by Trump’s tariffs had obscured how precarious the UK’s financial position had become – and how rapidly the position is now deteriorating. The borrowing figures are getting relentlessly worse month-by-month.
It is not hard to work out why. The huge pay settlements for the public sector agreed by the Government over its first few weeks in office have driven up wage bills and added billions to the public sector payroll. Departments, led by Ed Miliband’s deranged green energy empire, have been spending far more than they were meant to. Local authorities have been left to pick up the welfare bills for the surge in asylum seekers.
Meanwhile, in a stagnant economy, corporation tax revenues have proved disappointing as companies struggle to make any money. VAT is no longer raising the amount expected as struggling households rein back their spending. Even worse, these are only the ‘provisional’ figures. If anyone feels like a bet, here is a certain winner. When the final numbers are tallied up, they will be far worse.
The borrowing numbers are only going to go higher over the course of the summer. The huge rise in National Insurance charges will hit the public sector as hard as any private sector employer; it will add hundreds of millions to the cost of employing the 6.1 million people who work for the Government.
Businesses are already laying off staff and closing units – look at the decision by Morrisons to close 52 cafes and 17 convenience stores as a typical example of what is happening right across the country – to save on costs, and this will hit income tax and VAT revenues.
In reality, this can’t continue for much longer. As the ONS made clear today, the UK last year borrowed 5.3% of GDP, an unprecedented figure at a time when the economy was performing perfectly well (at least until Reeves took over), and there was no immediate crisis to contend with.
The real figure may well be 6% already, and it will certainly hit that level before the autumn. So far Reeves has only announced welfare cuts that will prove mostly fictitious, and “savings’” that won’t be delivered.
“The blunt truth is this,” he concludes: “Reeves has completely lost control.”
Worth reading in full.
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