Reform UK chiefs ask to meet gilt holders amid bond rout
Robert Jenrick has asked to meet with top traders at the likes of Barclays and Goldman Sachs in London and New York who hold UK gilts as a recent surge in borrowing costs threatens the UK’s public finances.
Reform’s Treasury spokesman announced at the Reform conference that he had written to the major holders of gilts to trump up the party’s plans to cut borrowing and “exercise discipline throughout the public sector”.
Jenrick said tax cuts would be delivered in a “sensible, measured” fashion to boost growth.
“To restore confidence, the next government must get borrowing under control and tame inflation,” Jenrick wrote to market participants.
“This will bring down interest rates and get the economy moving again. To do this will require both fiscal discipline and supply-side reform. It will also require commitment to important institutions that investors rely on.”
Morning Wire confirmed that major City institutions including Citi and JP Morgan were sent the letter.
Medium-term gilt yields dropped slightly on Thursday after reaching near-two decade highs amid concerns about the UK’s fiscal problems and vulnerabilities to a surge in inflation.
City analysts said at least £6bn would be cut from John Healey’s fiscal headroom.
No ‘pussyfooting’ on cuts
In events at the Reform conference, Jenrick said a Reform government would be prepared to cut £80bn from public expenditure mainly through welfare reforms. This would make up about £50bn of the cuts.
He also said the UK needed to stop “pussyfooting” on cutting government expenditure across the civil service.
He said that the fiscal tightening could save the UK government about £30bn a year in debt interest payments.
The UK is projected to spend more than £110bn in paying off lenders this year. Office for Budget Responsibility forecasts say expenditure will rise in the next few years to eclipse the education budget.
One City source told Morning Wire they believed odds were “stacked against” the financial services sector in terms of potential tax hikes.
Tax experts have warned that a rise in borrowing costs this week due to a rout in global bond markets would put “pressure” on Healey to raise taxes.
Blick Rothenberg partner Elisa Sofocli said: “There is a danger that tax becomes the easiest lever to pull when the public finances are under pressure. But repeatedly increasing taxes or adding complexity can create a drag on the very economic activity the government is trying to encourage.”
“If the UK becomes more expensive and more complicated without delivering greater certainty, we should not be surprised if those decisions start being made elsewhere.”