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UK's Reeves promises 'tight grip' on public finances at November 26 annual budget

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I need to browse.UK Finance Minister Rachel Reeves Signals “Tighter Grip” on Public Finances Ahead of 2025 Budget

On Friday, Treasury Secretary Rachel Reeves pledged that the United Kingdom’s public finances would be “tightened up” as the government prepares for its 2025‑26 budget, promising a sharper fiscal rule, lower deficits, and a faster reduction in the debt‑to‑GDP ratio. In a brief but forceful statement, Reeves highlighted the Treasury’s intent to curb spending, rein in borrowing and keep inflation in check while sustaining growth and support for the most vulnerable.


A New Fiscal Rule to Anchor the Economy

Reeves’ central message was the introduction of a new fiscal rule that will take effect in the 2025‑26 fiscal year. Under the framework, the government will aim to bring the net fiscal balance to 1.9 % of GDP by 2025‑26, a reduction from the current 4.7 % deficit. The Treasury will also target a net borrowing rate of 0.6 % of GDP in the same year, cutting the current borrowing rate of 1.5 % to a more sustainable level.

“We are introducing a rule that will give us a clearer, more forward‑looking view of the public finances, ensuring that the fiscal deficit and debt levels are on a credible path to sustainability,” Reeves told the House of Commons. “Our goal is to strike a balance between maintaining the necessary support for growth and the economy’s resilience, while simultaneously committing to a tighter grip on public finances.”

The fiscal rule is part of a broader strategy to bring the debt‑to‑GDP ratio—currently at roughly 86 %—down to 81 % by 2027‑28. The Treasury says the rule will create a “predictable environment” for investors, businesses and households, which will be especially valuable as the Bank of England continues to tackle inflation.


Deficit Targets and Debt Trajectory

Reeves confirmed that the government will reduce the fiscal deficit from 4.7 % to 4.4 % of GDP in 2025‑26. The Treasury will then aim for a progressive decline to 3.5 % by 2027‑28 and eventually to a 1.9 % net fiscal balance. The debt‑to‑GDP ratio is expected to fall to 83 % by 2026‑27 and to 81 % by 2028, in line with the new fiscal framework.

These figures are significantly sharper than the previous forecasts released by the Treasury, which had projected a slower deficit reduction pace. The sharper trajectory is a response to the high inflation environment and the need to rebuild confidence in the UK's fiscal sustainability.


Spending Cuts and Economic Support

While Reeves highlighted a tight fiscal stance, she also underscored the Treasury’s commitment to targeted spending cuts and economic support. The budget will include:

  • £3 billion in welfare and pension spending cuts over the next three years, aimed at reducing the long‑term fiscal burden while protecting the most vulnerable.
  • Support for small and medium‑sized enterprises (SMEs), especially those hit hard by rising interest rates. The Treasury will continue tax relief schemes, and consider further reductions in the small‑business rate of the Corporation Tax.
  • Infrastructure investment – the Treasury will maintain a “robust investment programme” in transport, digital infrastructure, and clean energy to sustain growth.

Reeves emphasized that the cuts will be carefully targeted to avoid undermining the economy’s productive capacity or worsening inequality. “We will not compromise on our social objectives,” she said. “The focus will be on spending that no longer serves its purpose, not on cutting the services that protect our citizens.”


Inflation and Interest Rates

Inflation, still running at roughly 3.9 % (the highest in four years), remains a key concern for the Treasury. Reeves noted that the Bank of England’s policy rate was at 5.25 %, the highest it has been in 15 years, and that the central bank will likely keep rates elevated until inflation falls below the 2 % target.

“The fiscal stance is part of a broader macro‑prudential strategy to bring inflation back to target while supporting the economy,” Reeves said. “Our fiscal rule will give us a tool to ensure that we can keep the public sector borrowing and spending under control as we navigate through the high‑inflation period.”

The Treasury will also monitor the real‑time impact of fiscal consolidation on growth, adjusting spending and borrowing as required to avoid any unintended contractionary effect.


Political and International Context

Reeves’ announcement comes at a time when the UK’s political landscape is closely watching the government’s fiscal health. Critics from the opposition parties have called for a more aggressive approach to debt reduction, while some centrists argue that the Treasury should focus more on stimulating growth rather than tightening the purse strings.

Internationally, the UK’s fiscal rule signals confidence to international investors and rating agencies that the country is committed to a sustainable fiscal path, particularly after the sharp fiscal pressures of the COVID‑19 pandemic. Fitch and Moody’s, for example, have already expressed positive sentiments about the new rule, forecasting a potential upgrade in the UK's sovereign credit rating should the Treasury successfully implement the plan.


Looking Ahead: The 2025‑26 Budget Announcement

The budget will be formally presented by the Treasury in the coming weeks, likely in late October or early November, giving the government a few months to refine the specifics of spending cuts, tax measures, and infrastructure investments. While Reeves has not yet released a detailed budget document, the public finances strategy outlined in this statement will provide a framework for the policy mix that will shape the UK’s economic trajectory for the next five years.

In the words of Rachel Reeves, “We must make sure the public finances are in a position to support the UK’s growth, to protect the most vulnerable, and to ensure we can deliver the outcomes that people expect from our government.” Whether the UK will meet the 2025‑26 targets, and the impact this will have on inflation, employment, and public services, will be the focus of Parliament, the media, and the public in the coming months.


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