Rachel Reeves is betting on growth to rescue the UK finances (Image: Getty)
Chancellor Rachel Reeves’s support for a new runway at Heathrow will be no comfort to Britons facing a nightmare.
Her valiant attempt to bolster confidence in the economy cannot mask the frightening hike in costs awaiting homeowners throughout the UK.
Around 570,000 households are due to come off five-year fixed-rate mortgages this year and see their costs rocket by £2,700 annually, according to a sobering analysis by the Resolution Foundation.
There are already signs of a slowdown in household spending. Families will have to introduce their own austerity policies if their costs surge – with grim consequences for the high street.
Nobody confronting this reality will have woken up on Thursday morning and said: “Thank goodness more planes might land in Heathrow in 2035, and I’m so glad scientists can look forward to improved transport connections between Oxford and Cambridge.” The challenge facing households is real, stark and immediate.
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If growth really is the number one objective of this Government Rachel Reeves must not allow families to fear they face financial ruin.
Job insecurity must be kept at bay. The hike in employers’ National Insurance contributions will hit businesses in April; workers will be even less likely to splash out on the occasional growth-supporting luxury if they fear their bosses are about to cut headcount.
The Chancellor has a debt challenge of her own, with the annual cost of borrowing £7billion higher than had been expected.
The warns that the “Government’s commitment to bring borrowing for day-to-day spending to zero by the fifth year of the forecast stands on a knife edge”.
What should she do if the Office for Budget Responsibility forecasts on March 26 that she is on course to breach her fiscal rules? Hiking taxes yet higher would come with a heavy political price but cutting spending would make it even harder to rescue public services.
Ms Reeves will not want to be railroaded into making radical decisions but chaos awaits if the markets lose confidence in the Chancellor and her team.
The Treasury will be haunted forever by memories of the panic which doomed Liz Truss’s premiership. The country cannot afford further hikes in borrowing costs and falls in the value of the pound.
Andrew Marr recently warned that bond customers will react to the “image of Britain under Labour as a decayed, failed state run by idiots”.
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The Chancellor is absolutely right to prioritise growth to get the country out of the economic danger zone but is the Bank of England – not the Treasury – which has control of one of the most important financial levers.
As the experts at the Resolution Foundation say, “in 2025, it is down to the Bank of England to respond to the growth slowdown”.
Tony Blair and Gordon Brown’s decision in 1997 to grant the Bank independence means a Chancellor in a fix cannot slash . The Bank’s caution incensed Conservative MPs in the tail-end of the Tory era, and their Labour successors may also tear their hair out.
Labour MPs across the country know that their landslide majority will evaporate if voters feel worse off than when they took office. The Chancellor must not turn a deaf ear to the pain of -holders; if she does, Britons will jump at the chance to ensure at the next election it is Labour that is leaving on a jet plane.