Bankers are to review state spending as part of a push to bring the private sector “into the heart of government”.
External oversight is to be incorporated into the first line-by-line spending review of government departments in 17 years.
Under plans announced by the Chancellor Rachel Reeves “every pound” of government spending will be interrogated to ensure it represents value for money.
Departments will be expected to find savings and “efficiencies” in their budget as Ms Reeves said she wishes to remove waste in the public sector.
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“The previous government allowed millions of pounds of taxpayers’ money to go to waste on poor value-for-money projects,” she said.
“We will not tolerate it; I said I would have an iron grip on the public finances and that means taking an iron fist against waste.”
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Departments will be told by Ms Reeves they cannot operate in a “business-as-usual way” when reviewing budgets.
The new budgets will be scrutinised by “external experts” including former senior management of Lloyd’s Bank, Barclays, and the Co-op.
These budget examiners will bring “an independent” view into what spending is necessary, the government said.
Other experts will be academics, from thinktanks and other parts of the private sector.
All spending must contribute to the government’s stated aims or it won’t be funded.
“Some of these decisions will be difficult,” the government said, as spending should be stopped if it is not contributing to a priority.
The private sector will also be able to contribute to government budgeting through the launch of an online feedback portal for policy proposals.
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The chancellor is seeking to cut state spending after she identified a “£22bn black hole” between state spending and revenues.
Her October budget laid out plans to cut spending in the coming years with departments required to meet a 2% “productivity, efficiency and savings target”.
On Monday the government launched a £100m fund and called on “disruptors, innovators and creative thinkers” to help make the civil service more productive.
New “test-and-learn teams” will be put into public services across the UK to “experiment and innovate” in an effort to “fix the public sector’s biggest challenges”.
Is there method to the madness? Donald Trump and his acolytes would have you believe so.
The US president is standing firm among all the market chaos.
Just this weekend, after US stock markets suffered their sharpest falls since the onset of the pandemic, Trump reposted a video on his social media platform Truth Social. This was its title: “Trump is purposefully CRASHING the market.”
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The video claimed the president was engineering a flight to US government bonds, also known as treasuries – a safe haven in turbulent times. The video suggested Trump was deliberately throwing the stock market into chaos so investors would take their money out and buy bonds instead.
Why? Because demand for treasuries pushes up the price of the bonds, and that, in turn, lowers the yield on those bonds.
The yield is the interest rate on the debt, so a lower yield pushes down government borrowing costs. That would provide some relief for a government that has $9.2trn of government debt to refinance this year. Consumers also stand to benefit as the US Federal Reserve, the US central bank, would likely follow suit, feeling the pressure to cut interest rates.
A trader works on the floor at the New York Stock Exchange. Pic: Reuters
Trump and his treasury secretary, Scott Bessent, have made it a key policy priority to lower yields. For a while, it looked like the plan was working. As stock markets tumbled in response to Trump’s tariffs agenda, investors ploughed their money into bonds instead.
However, Trump may have spoken too soon. On Monday, the markets had a change of heart and rapidly started selling government bonds. Thirty-year treasury yields hit 4.92% on Wednesday, their biggest three-day jump since 1982. That means government borrowing costs are rising – and not just in the US. The sell-off has spiralled to government bonds worldwide.
Rachel Reeves will be watching anxiously. Yields on Britain’s 30-year government bonds, also known as gilts, hit their highest level since May 1998. They registered a 27 basis point jump to 5.642% today – that’s on track to be the largest one-day move since the aftermath of former prime minister Liz Truss’ “mini-budget” in October 2022.
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This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
In 2020, investors sold bonds because they had to cover losses elsewhere in their portfolios. When markets fall, as they have done over the past few days, lenders can demand that an investor who has borrowed money stump up more cash against the value of their loan because the collateral against those loans has fallen in value. This is known as a “margin call”. Government bonds are easy to sell as investors “dash for cash”.
There are signs that this may be happening again and central banks, which had to step in last time, are alert.
The Bank of England warned today of the growing risks to financial stability. “A sharp increase in government bond yields could crystallise relatively quickly,” it said.
There are other forces weighing on government bonds. With policy uncertainty unfolding in the US, investors could also be signalling that US debt isn’t the safe haven it once was. That loss of confidence also seems to have hurt the dollar, one of the world’s safest places to park your money. It’s had a turbulent journey but is down 1.15% against a basket of safe haven currencies since Trump announced widespread tariffs on 2 April.
Some are even wondering if China could be behind some of this, dumping US government debt as a revenge tactic to hurt a president who has explicitly said he wants bond yields to come down. The country holds $761bn of US government bonds, second only to Japan. If this is the case, then the US-China trade war could rapidly be evolving into a financial war.
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