Labour will splurge an extra £17.5billion on servicing debt interest over the course of the Parliament after Rachel Reeves changed the borrowing rules, Goldman Sachs has predicted.
The Chancellor will use a different measure of debt to borrow up to £50billion more for extra investment – while still meeting a target of starting to bring debt down in five years’ time.
Reeves’s aim is to boost growth – but those effects will take time and borrowing will rise in the short term, Goldman’s experts pointed out.
Also driving up the interest payments will be a slightly higher than expected path of Bank of England interest rates than forecast in the spring Budget in March.
That means a ‘somewhat higher forecast for interest expenses’ for the remainder of this year, according to the analysis. The model assumes annual interest payments around £3.5billion higher on average over five years.
Reeves is expected to receive a boost when Britain’s annual growth forecast is upgraded from 0.8 per cent to 1 per cent on Wednesday – but has been warned she risks throwing it away by hiking taxes.
The UK enjoyed the best growth in the G7 over the first half of this year – defying the doom and gloom of Labour ministers including Reeves.
Investec economist Philip Shaw said: ‘We are sceptical of Reeves’s claims that Labour has inherited the worst economic legacy since World War Two. The economy cannot be said to be in a worse shape than in 2010 when the western world remained mired in the wake of the Global Financial Crisis.’
Reeves has said the new government will be ‘the most pro-growth’ that Britain has ever seen.
But businesses fear that that ambition will be undermined by her plans to announce a series of tax increases in the Budget.
A Lloyds survey shows that business confidence has dropped to its lowest level in four months. It follows surveys showing confidence among businesses and households has tumbled in the face of Labour nay saying. Fears of tax hikes have also taken their toll.
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