Tory leader Kemi Badenoch has urged Chancellor John Healey to focus on urgently cutting spending and avoid making “fictional cuts” at the end of parliament.
In a speech in London on Tuesday, Badenoch will warn that Labour’s deficit reduction plans rely on “huge cuts to the public sector in the final year of the spending period” that ministers may never have to deliver because an election is likely to come first.
Spending growth in real terms is set to slow at the end of the forecast period following a faster rise in the early years of the Labour government, leading economists to warn that plans to ease spending were based on “ambitious” assumptions.
“Fictional cuts are not going to cut it. Investors simply aren’t buying it,” she is expected to say, pointing to analysis from the Institute for Fiscal Studies stating that higher inflation could erode the value of spending and leave a £35bn black hole in budgets.
The speech comes at a pressing time for the opposition leader as she looks to stamp her party’s authority on economic issues just as Labour became more trusted among voters on the issue, according to a survey by Survation.
Badenoch will claim Healey, who will deliver his first Budget on October 28, risks doing more damage than either of Rachel Reeves’ budgets by attempting a ‘nothing to see here’ fiscal event.
Badenoch’s warning on debt
Her comments come amid mounting pressure on Healey ahead of the Budget. The 30-year gilt yield topped six per cent in early October, a level not seen since 1998, amid a wider global rise in bond yields this month.
UK government bond yields have eased slightly from an earlier peak but rose on Tuesday after wage growth excluding bonuses paced ahead of expectations, suggesting that earnings and price pressures were building in the UK economy ahead of an interest rates decision in November.
The Tory leader will say that the UK is paying “nearly two per cent more than Germany” on borrowing costs. Debt interest payments are expected to climb to about £110bn this year and climb above £130bn by 2030.
“The whole argument on defence spending would go away if our interest rates were reduced,” she will say.
“We do not think it is fair to leave our children saddled with debts we were too idle or cowardly to pay.”