UK will stick to fiscal rules despite global turmoil, says finance minister

London — Britain’s government will stick to its fiscal rules despite global upheaval, finance minister Rachel Reeves said on Sunday, raising the prospect of belt-tightening measures to meet her targets for the public finances in a budget update this week.

In her first full budget last October, Reeves sought to win the trust of investors by pledging to bring day-to-day spending into balance with tax revenue by the end of the decade.

But she is believed to have been knocked off course by slow economic growth and higher borrowing costs. A potential global trade war triggered by US President Donald Trump’s import tariffs has led to downgrades to the international outlook.

“The world has changed. We can all see that before our eyes and governments are not inactive in that,” Reeves told Sky News. “We’ll respond to the change and continue to meet our fiscal rules.”

On Friday, British debt costs jumped after higher-than-expected borrowing figures, showing nervousness among investors about the ability of Prime Minister Keir Starmer’s government to fix the public finances with the economy stuck in a slow gear.

Last week, the government announced cuts to welfare spending to save about £5bn ($6.5bn) a year, angering some lawmakers in Starmer’s centre-left Labour Party.

Reeves is expected to announce further measures in her Spring Statement on Wednesday to restore her £10bn of room for manoeuvre to meet her fiscal targets.

Asked by Sky News about possible spending cuts, Reeves said public spending was still expected to outpace inflation in each year of the current parliament.

“But as a government, we have to decide where that money is spent, and we want to spend it on our priorities,” she said.

The government has increased spending on defence in response to Trump’s calls on Europe to do more to protect its own security. Further increases are planned for the coming years.

Reeves said 10,000 public sector jobs could be cut under a new plan to lower civil service costs by 15% by the end of the decade and save over £2bn a year, adding it was not right to keep Covid-era staffing increases.

More than 500,000 people work in the civil service.

With the economic growth outlook likely to be slashed on Wednesday, Britain hopes to avoid the brunt of import tariffs that the Trump administration is considering.

“President Trump is rightly concerned about countries that run large and persistent trade surpluses with the US. The UK is not one of those countries,” Reeves told the BBC on Sunday.

Asked whether Britain could offer to end its Digital Services Tax levied on large tech companies such as Google and Facebook to win favour in Washington Digital Services, Reeves said talks were ongoing.

“We’re in discussions at the moment around a whole range of things around tariffs with the United States but we will continue to operate on that principle that you should pay taxes in the country in which you operate,” she said.

Reuters