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Rishi Sunak, the former UK prime minister, has urged Rachel Reeves to build up more fiscal “headroom” to stabilise the British public finances, claiming that the Labour chancellor’s Budget might not be as eye-wateringly grim as some have predicted.
The former Conservative leader has joined Jeremy Hunt, his former Tory chancellor, in pressing Reeves to be bold in using her Budget to bolster the public finances, to get out of a “doom loop” of constant speculation about future tax rises.
Treasury officials have said that Reeves will increase her fiscal buffer, which stood at just £9.9bn at her spring forecast in March. Some people briefed on her thinking have said she could at least double that figure.
But Reeves has acknowledged to colleagues that while such a move will reassure bond markets and help to drive down borrowing costs, it will also mean tough decisions on tax rises or spending cuts in the short term.
A continued freeze on income tax thresholds, tax reforms for expensive properties and a gambling tax — as well as potentially a manifesto-breaching increase in income tax rates — are among the options being considered by Reeves.
Sunak, who is starting to assume a higher public profile after months of staying below the radar following his 2024 election defeat, argued that Reeves may be under less pressure in her November 26 Budget than some have predicted.
Sunak, in his new role as a Sunday Times columnist, said the first round of pre-Budget forecasts by the Office for Budget Responsibility may not have been as bad as previously thought. That explained why Reeves was talking about boosting her fiscal headroom, he suggested.
“It indicates that Reeves is looking at a hole closer to £20bn than £30bn, despite how bad this September’s borrowing figures have been,” Sunak wrote, although he said there are sometimes “huge swings” in OBR forecasts ahead of Budget day.
“The UK issues much less long-term debt than it used to,” he said. “Respected City figures calculate that this shift means funding has actually been cheaper this fiscal year than in the previous two. The OBR numbers will reflect that and so be a lot less grim than predicted.”
Sunak, like Hunt, believes Reeves made a mistake in leaving herself only £9.9bn of headroom in the spring and both argue that spending cuts and other reforms are better ways of beefing it up.
“A bigger buffer could create a virtuous circle,” he wrote. “Bond markets would be reassured by the additional headroom and so feel more confident in the UK’s finances, reducing government borrowing costs. It’s clearly the right thing to do, and much better than the alternative of months of uncertainty every year.”
Hunt, writing in the Financial Times this weekend, said Reeves needed to break free of the debt “doom loop”, arguing that spending controls and a stronger growth plan were better ways of propping up the public finances than tax rises.
“That will require much more boldness in areas like planning reform, public-sector productivity, welfare reform and energy market reform,” he wrote.
Earlier this month Sunak was appointed as a senior adviser by Microsoft and artificial intelligence start-up Anthropic. Sunak, who remains a UK MP, worked with both tech groups as the UK premier, setting up an AI safety summit in 2023.
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