Exclusive – Reeves’s new Budget lie exposed

0:02The Telegraph

0:09Another budget lie from the Chancellor. She said, yes, I'm raising your taxes, but I am reducing borrowing and paying down the debt. But The Daily Tea can reveal that Rachel Reeves has actually hidden a double whammy of borrowing that will saddle the UK with a£1.3 trillion debt mountain over the course of this Parliament. Welcome to The Daily Tea with me, Tim Stanley. And me, Camilla Tominey.

0:48Camilla, following the budget, the Chancellor's credibility is on the line. And we think we've caught her out in another fib. Well, we've caught her out, but with some help. With some help. From Sir John Redwood, who joins us in The Daily Tea studio. Yeah, who did all the maths for us. But at the heart of her argument is she inherited a mess. She is maybe spending a bit more, but she's also managing the finances well. Yes. So that the economy doesn't collapse, etc, etc. She's got fiscal rules and she's not breaking them. Exactly. And central to that is a claim that she made during the budget with regards to borrowing and debt.

1:28Let's listen to that now. Today's budget builds on the choices that we have made since July last year. To cut NHS waiting lists. To cut the cost of living. And to cut debt and borrowing. I said I would cut debt and borrowing and I meant it. Because of this budget, borrowing will fall as a share of GDP in every year of this forecast. One in every£10 that government spends is on debt interest. Not on paying down that debt, but just on paying the interest on the debt that we inherited from the Conservatives. My fiscal rules will get borrowing down while supporting investment. Madam Deputy Speaker, I said we would cut the debt, and we are, with debt down by the end of the forecast.

2:21and going forwards to support our commitment to a single fiscal event and further strengthen our economic stability. Those are my choices. Not austerity, not reckless borrowing, but cutting the debt, cutting waiting lists and cutting the cost of living. So there we've heard it, Sir John. I mean, you have witnessed many, many budgets, been involved in budgets under Margaret Thatcher and others, so you have been at the sharp end of this, at the coalface. but you've discovered a little hidden table in the budget documents that merits further analysis so you need to explain bearing in mind tim and i tim's an academic i'm just a journalist we're both functionally innumerate you're going to have to explain this to us like we're five-year-olds but let's talk first of all about existing debt and how that debt is going to go up john It was very easy.

3:18The government has a dreadful spending habit. And so not only is it raiding us all with higher taxes, but it's going to be borrowing a lot more. So it took my breath away to hear her say that she was bringing the debt down. She is going to be borrowing£628 billion more by year five if she gets there than she's been spending this year. And that will obviously be extremely expensive and it will mean that the stock of state debt goes up. So before she came in there was a debt. She is going to add more debt to it. So just explain to me how in her head does she get away with saying, I'm reducing it?

3:59Well, I think she would defend herself by saying that the debt might go down as a proportion of GDP, which is based on a funny forecast. But if you read the detailed numbers, that isn't even true. Right. Up to 28.9, she's not only increasing the debt in cash terms, which is what people normally think is extra borrowing, but she's increasing it as a proportion of the total national output. And if you look at the actual state debt without the Bank of England, it goes up throughout the time period right up to 2031 if these plans ever saw fruition. So I'm afraid it is just not true, Chancellor. You are increasing the debt in any normal person's terms by this colossal sum of 628 billion.

4:42That is a£20 ,000 additional overdraft for every family in the country if we all had to take our average share of it. and that is going to be a bigger proportion of our national output on the OBR figures, on the normal figures in their document, than it is today. OK, so that's one side of it, although you've identified a double whammy of borrowing and you've co-authored this report with Brexit Facts for EU. See what they've done there, Tim? For EU. So we've got that£628 billion figure. Let's keep that in our minds. but you've found a little table that reveals that actually there's another 675 billion figure, John, that you need to explain to us.

5:30Because they've got a very large stock of debt at the moment, it's like having a mortgage. And on a certain date, some of that debt has to be repaid like a mortgage does. And so then you have to re-borrow for the amount of money that you have to repay. So over this time period, the number crunches in the Treasury and the bank think that they're going to have to borrow an additional$675 billion to replace debt that they need to repay, on top of the$628 billion because of their awful spending habits. So you end up with them needing to borrow from the famous bond markets they are rightly very worried about.

6:06Not£628 billion, but£1 ,300 billion,£1.3 trillion of borrowing over the five years. It's absolutely whopping. That then takes the overall debt to, if we add the£1.3 trillion, John, these are massive numbers. I don't even know how many noughts are involved in a trillion, but it's a hell of a lot. That then takes the entire national debt to£3.5 trillion, I think, John, if I've got my sums right. You just add the£628 ,000 because obviously the debt that repays is replaced by the new borrowing, so that doesn't add to the total. And how much is that per household? Well, that's about£120 ,000 per household by the time you get the full amount.

6:54That is a staggering amount. I mean, is there something unprecedented about this? How does this relate to previous governments? I feel like the British public has become used to us both being in debt and in deficit, two different things. But can you just quantify this in comparison to her predecessors? Well, this is completely uncharted territory. We've never borrowed on this colossal scale. And there were very big annual borrowings over Covid because a big chunk of the economy was locked down. and Parliament as a whole thought that people needed to be given some subsidies to keep them going when they were legally stopped from going to work.

7:30So there was a special reason why we had to borrow quite a lot, but the stock of debt they were adding to was a lot lower in those days. You've now got all of that accumulated debt. And instead of doing what she said she would do in the budget, which was the right thing to do to actually cut the debt, she's come in and decided to increase the debt further. So it is another budget lie. If you're saying you're bringing debt and borrowing down and you're not, regardless of imaginary 20 to 30 billion pound black holes, regardless of obfuscation and deceit over whether or not working people are being taxed, by saying she's bringing down debt and borrowing and you revealing that she's doing the opposite, she's lying again, John.

8:11I mean, is that your conclusion? You know, no one normal says that they are bringing their debt down when they're borrowing more, which is what she is doing. And if she comes up with this defence about, oh, well, if you do some complicated sums, it doesn't look so bad because there's been a lot of inflation and a bit of growth in the economy. Even on that basis, there are some tables in her own documents which say that isn't happening. It's certainly not happening before 2028-9, which is the likely last year of this government. You see, the contradiction is so great, I almost can't get my head around it.

8:43This is someone who went on telly to say the economy was in trouble. It turned out it wasn't nearly as much trouble as she said. It's someone who says in the budget that she's being austere, but actually spending is massively going up, who says they want to reform welfare, but they're giving people more money. and who also said one could almost justify austerity if it were putting the nation's finances in order. But what you're saying is there's this new contradiction that actually she's just borrowing more. She was just telling us about her interpretation of the new borrowing without mentioning the old borrowing that she has to finance.

9:18Now, we've had this in the past with budgets that it takes a few days for us to go through the facts and figures and figure out what's really going on. Where are you taking these figures from? What have you seen that we wouldn't have known when she was saying all this at the dispatch box? Well, I mean, anybody who follows the economy should understand what I've said and would get the numbers from the same sources I did. They're in the budget red book and in the OBR. That's it, the budget. Long document that was very obligingly given to us before the budget. However, as you say, that extra 675 billion figure, which you are putting towards the renewal of the loans, has been buried in a tiny table on page 158 or something?

9:59Yes, well, we're not buried. It's there. It's not nearly as interesting as the extra debt that she is incurring to spend too much. And that's the proper focus of the debate. But I'm just making the point that when you're thinking about what interest rate you're going to have to pay to borrow all this money, you should, as Chancellor, not only be worrying about the 628 billion new money you want to borrow from your bank manager, but you also ought to be worrying about how you refinance the debt you've already got, because the two relate to one another. And they might turn around in the markets and say, you put those two together, this is an awful lot of money you want to borrow all in a hurry.

10:37Is this akin to me going to a bank manager and borrowing more when I'm already borrowing? Well, of course it is. I mean, it's somebody who's got a really big overdraft already and then says, oh, I've seen some other things I'd like to buy. You know you can trust me. Why don't you lend me a bit more? And if they are very, very credit worthy, the bank manager says, all right. But the bank manager would also say, by the way, that existing overdraft, you've got to repay a chunk of it next year. How are you going to do that? And you'd have to say to the bank manager, well, I thought you'd lend me that again as well.

11:09And that's all part of the same discussion. if you went to get extra overdraft, the bank manager would say, well, hold on, I do want to talk to you about how you roll over the overdraft you've already got. And that brings us onto the issue of the confidence of the people lending to us. How's that holding up? What do the markets think about all this borrowing? How is that affecting the cost of the borrowing? Well, I think the markets are rightly saying the UK is never going to renege on its debt, and that there will be a muddle through. But they are also saying that they trust the UK government less than any of the major governments on the continent, some of whom borrowed even more to date than the UK has done.

11:49And they trust it less than Trump's America. Are we trusted less than Greece? Yes, we are having to pay a higher interest rate than all the major advanced countries in Europe and in the United States of America. And that has been a feature of this year. I mean, the interest rates that Rachel Rees and her treasury are having to pay are quite a bit above the worst one-day rate of the trust incident. Right. And why? Why are we less trusted than a government like Greece to pay our debts? Well, because people think that there's a government there that isn't now controlling its spending or its borrowing in the way they would like, to the extent they would like, whereas they think that Greece has had to come under discipline in from the bankers and bond markets because it went through a dreadful crisis and was in a far worse mess than we were and seems to have learnt some lessons from that bitter experience.

12:58Caveatting this with the fact that you were a Tory MP for a long, long time in Wokingham and therefore you aren't entirely objective when it comes to comparisons between, say, Truss and Reeves. Just take your political hat off, John, and just look at it from a kind of mathematical point of view. There's some confusion about what guilt yields are and the guilt yields and borrowing. I mean, guilt is another word for a government loan, correct? That's right. Now, we've heard a hell of a lot from Rachel Reeves about the catastrophic mini budget, about Tory inheritances and all the rest of it. What is the situation with these gilts now in comparison to trusts and what can we extrapolate from that?

13:42Well, there are two advantages now compared with under trusts. Firstly, the pension funds who had bought far too many gilts they couldn't afford and got into a real pickle when the price of the gilts went down now seem to have sorted out their position so they're not false sellers in the way they were under trust. That's a big win. And the Bank of England, which really triggered a lot of the fall in the gilt market under trust by announcing a very big sales programme, has now reduced the sales programme a bit. So that helps. But obviously the trust budget was proposing to borrow more than was appropriate.

14:18That was a clear mistake by trust. And it never got implemented because the Conservative Party said, you know what, this is borrowing too much. We're going to rein that in. Whereas Reeves has now had two budgets borrowing far too much and the markets have said, this is why you've got to pay an even higher interest rate than them. So it is a difference between Reeves and Trust that Reeves has a better poker face. Because I feel so thick because I thought the government had these fiscal rules and because they kept saying that they were obeying their fiscal rules, I thought they were. I'm not used to people just lying.

14:56A different podcast subject probably, but the fiscal rules are hopeless, the ones that Reeves designed. And they're all related to year five of the forecast. So she will say, come 2031, it's all going to be looking a lot better. Well, the trouble is five years never comes. And the forecast is bound to be wrong. The poor old OBR has no chance of forecasting the deficit in five years' time, nor do you, nor do I. Because who knows? We don't know who the government's going to be, who the Chancellor's going to be, who's going to be the President of America, whether we're in world recession or world growth, whether we've controlled our inflation, any of these things.

15:33You cannot conceivably make a sensible five-year forecast. And so it's the result of an argument between the Chancellor and the OBR. And they've obviously had a very brutal argument this time over what the five-year figure will be like. And it's a totally made-up figure. I feel like a monk discovering where babies come from. You're telling me that the fiscal rules are actually based upon an end-of-term prediction. That's right. They're not fiscal rules we're living by now. No, they're not real numbers. No, they're just kind of imaginary figures. So the whole fiscal rule thing was also a big lie.

16:08I tell you what, it's because fiscal does a lot of heavy lifting. It sounds good. It sounds impressive. It sounds trustworthy. Technical, yes. Fiscal discipline. Don't ask me about that. No, I know all about that. No need to. But you see, as someone who's professionally tried to do forecasts for what's going to happen next, I always refuse to forecast any detailed numbers after two years. Yes. Because it becomes more and more meaningless. You can do scenarios and estimates of trends and that kind of thing, but it's extremely difficult to come up with a specific number. And it's particularly difficult to come up with a specific number for a deficit because a deficit is a small number between two very big numbers.

16:46So you have a colossal lot of spending and you have a colossal lot of taxation. And it's the gap between the two that is the deficit. So the deficit swings around very violently with quite small changes in the amount of taxing or the amount of spending. I mean, back to the politics of all this. I mean, bearing in mind that I'm somebody who can't do the numbers rounding countdown. So I'm just going to go back to my familiar territory. I think what we're basically saying that is if Liz Truss was a lettuce, Rachel Reeves is a cabbage. I think that's what we're saying. I think we're going to watch her as her career continues to disintegrate.

17:22I mean, just on the politics... No, I think she's like a takeaway burger that looks great on the poster. Yes. But then you actually get it and it's this flat, disgusting, recycled thing. It's a McDonald's Big Mac, which is completely misrepresented. It's always a lot flatter and wetter than it looked on the poster. Yeah, and like just limp. But let's look at this polling because again, if you don't mind me saying, Sir John, you have been round the block a bit, so you're very familiar with the highs and lows of any administration. Yeah, I've seen quite a few lows over the years. It's a journey.

17:57Politics is a journey. Well, this is quite the journey. It's heading into car crash territory because we've got... And that's before you leave the drive. I mean, the lows that you've experienced have typically come at the end of, say, 18 years of Tory government or 14 years of Tory government. It takes a long time. It usually takes a long time to get that wrong. Somehow this government's managed to reverse into the fence before leaving the House. So you, Gov, have crunched again some numbers. The majority of Britain, 60%, say Rachel Reeves is untrustworthy. Just 19 % disagree. But this is the killer.

18:30Only 10 % think Labour is the best party for managing the economy. lower than the 15 % recorded for the Conservatives under Liz Truss. By the way, that is lower as well than the party's nadir under Jeremy Corbyn of 12%. So the country is now saying that Rachel Reeves is less capable than both Liz Truss and Jeremy Corbyn. Than a communist or an anarchist. Quite. That could be a little chink of light for the Conservatives, though, Sir John, couldn't it? But is there an ability for Kemi Baden-Ock to seize back this narrative and actually be the face of genuine economic competence as opposed to the make-believe that we've been witnessing in recent days?

19:16Well, I think there is. And I think she's gone a long way to moving in that direction by a very good conference speech, setting out general conservative principles and then the response to the budget. It is exactly right that if you took over today, you would need to reduce spending quite materially because we are spending too much, therefore borrowing too much and taxing too much. And Kemi has said that she's identified 47 billion of reductions to start with, which is a very good start. And that half of that would go to borrowing less and half of that would go to tax reductions to get some growth.

19:52That would be exactly the right kind of economic package. No other party is suggesting anything that bold or that interesting. And if you're not prepared to take over and actually reduce some spending in some of the places where it's most wasteful or less desirable, you can't conceivably start to remedy the economic mistakes of Rachel Reeves. But then the Tories will be accused once again of austerity. What's your evaluation of the word austerity? Well, I think it's a convenient jibe which needs careful examination. I would certainly be against making big changes that damage the health service or undermine the principle that people got free health care or undermine good state education.

20:36These are very important things where you need to pay money and they will cost more over your years in government. But there are plenty of other things, starting with the welfare bill, where you can make substantial changes, where you're not creating austerity in public services that matter to people. And where you're trying to rebalance things. I think the public has got it before the government's got it, that they are spending too much on welfare and allowing too many people to have sick notes for life. Yes. so that they qualify for welfare for many, many years to come when they need to be much more active at working with such people and helping them into jobs and helping them to get the training they need so they can get better paid jobs because we can't afford to have all these people not in work and we can't afford to keep on bringing in cheap labour through granting far too many visas when we've got all these people sitting at home, many of whom would be better off psychologically as well as financially if we got them into jobs.

21:33Why should people worry about the debt? I mean, the thing is we're discussing something that I fear a lot of people say they care about, but it's not something they vote on. Well, we should worry about the debt because it has real-life consequences for the rest of us because it does drive up interest rates in this country higher than other advanced countries, and that means you're going to pay more for your mortgage or for your car loan or for the loan you need to start up or develop your business. At some point, you or your children or grandchildren have got a share in repaying some of this debt.

22:06But in the meantime, one of the biggest wastes in public spending is the colossal amount of debt interests that we have to pay as taxpayers or we have to borrow the money to pay. And Rachel Rees understands this. This is why she says she's going to bring the debt down, although that isn't actually what she's doing. And why she highlights the fact that the debt interest burden is now more than 100 billion a year. and that is going to go up quite a lot because of all our extra borrowings. If you look at one of the other little up tables in all these documents we've been shown, she says that by 2030 the debt interest is going to be$131 billion a year, not the$105 billion we had last year.

22:47So it's going to be a$26 billion increase in the interest costs and that's all money that has got to be taken from taxpayers. Well, that's a coincidence because it's£26 billion is the price of the tax rise. So there we are. If we're not paying our taxes to go towards people on benefits, we're paying them to go towards borrowing. It's not actually going towards government departments at all. It's not improving anything. No. And are we ever going to get the extra teachers we were meant to get from that on public schools? I believe there's trouble in recruiting them and maybe the money will go somewhere else.

23:19Well, we may be getting those extra teachers, John, but they're going to be very busy brushing people's teeth, children's teeth and giving them breakfast and changing their nappies, apparently, as Tim and I discussed on here yesterday. John, as well as crunching numbers and looking through Red Book reports and budgets, you also are a massive fan of Shakespeare, correct? I like Shakespeare, yes. Yes, and last week we addressed the budget. We did a podcast outside the House of Commons and Tim described it as not quite so much a budget statement but a sort of story of a personal tragedy. With Shakespeare in mind, is the Chancellor sort of playing a starring role in her own career tragedy?

23:57How do you think this is going to end? Can you imagine her staying in post? Do you think she'll have to resign? Could Keir Starmer fire her? Does she go the distance? What's your political antennae telling you? I think it's very unlikely she will go the distance of this Parliament. I think Keir Starmer will be reluctant to sack her because I think their fortunes are now very strongly linked. and he may well look back to past situations where prime ministers have thought getting rid of the Chancellor was a good idea and they didn't normally last long after that. So I think she may be forced out by Labour Party opinion, but it's not an immediate likelihood.

24:35I would imagine they'll want to get through the May elections first. I imagine she will exit pursued by a bear market. I love it. But is that the good one or the bad one? Well, wherever she exits, it's certainly stage left, not right. Sir John Redwood, thank you very, very much for simplifying the quite complicated for us today on The Daily Tea.

25:17Thank you.