Fiscal rules are silly but important as Reeves has banged on about them and markets care

Published

2 days ago

July 3, 2025

admin

You’re probably tired by now of hearing all about “black holes”.

It’s one of those phrases trotted out by journalists in an effort to make economic policy sound a little more interesting. And in some senses it’s a massively misleading image.

After all, when people talk about fiscal holes, what they’re really talking about is something rather prosaic: the amount of money it would take for the chancellor not to break her fiscal rules.

Those fiscal rules are not god-given, after all. They were confected by the chancellor herself. Missing them will not really result in Britain sliding into infinite nothingness. Even so, whatever you choose to call the dilemma she’s faced with right now, it’s certainly quite a big deal.

And understanding this helps provide a little context for the extraordinary events of the past few days, with markets sliding in the wake of Ms Reeves’ teary appearance at Prime Minister’s Questions.

Following that moment, the yield on UK government debt – the rate of interest we’re being charged by international investors – suddenly leapt higher. Granted, the jump was nothing like what we saw in the wake of Liz Truss’s mini-budget. And those yields dropped down after the prime minister backed the chancellor.

UK’s a global outlier

Even so, they underline one very important bit of context. The UK has become something of an outlier in global debt markets. For years, the yield on our benchmark government bonds was more or less middle of the industrialised-world pack. But since 2022’s drama, it has hovered unnervingly high, above every other G7 nation.

That speaks to a broader issue. Britain might not have the biggest deficit in the G7, or for that matter, the highest national debt. Others (most notably France, and to some extent, too, the US) face even more desperate fiscal dilemmas in the coming years. But markets do still seem nervous about Britain.

Perhaps that’s because of what they (and we) all endured in 2022 – when British gilt markets stepped briefly over the precipice, causing malfunctions all around the financial system (most notably in obscure parts of the pensions investment sector). But it also owes something to the fact that the chancellor’s own fiscal plans are sailing worryingly close to the wind.

Reeves made fiscal rules matter

The main piece of evidence here is the amount of leeway she has left herself against her fiscal rules. As I said at the start, there’s nothing gospel about these rules. But having created them and banged on about them for a long time, even those of us who are a little sceptical about fiscal rules would concede that breaking them is, as they say, not a good look.

Back in spring, the Office for Budget Responsibility thought the chancellor had about £9.9bn in leeway against these rules. But since then, she has u-turned on both the cuts in winter fuel payments and on personal independence payments. That reduces the £9.9bn down to barely more than £3bn.

But the real issue isn’t just these U-turns. It’s something else. The stronger the economy is, the more tax revenues come in and the more her potential headroom against the fiscal rules would be. By the same token, if the economy grows less rapidly than the OBR expected, that would mean less tax revenues and an even bigger deficit.

And if you compare the OBR’s latest forecasts with the current average of forecasts among independent forecasters, or for that matter, the Bank of England, they do look decidedly optimistic. If the OBR is right and everyone else is wrong, then the chancellor “only” has to fill in the hole left by those U-turns. But if the OBR is wrong and everyone else is right, things get considerably more grisly.

Even a small downgrade in the OBR’s expectations for productivity growth – say a 0.1 percentage point drop – would obliterate the remaining headroom and leave the chancellor with a £6bn shortfall against her rule. Anything more than that (and bear in mind, most economists think the OBR is out by more than that) and she could be £10bn or more underwater.

Now, there are plenty of very reasonable points one could make about how silly this all is. It’s silly that so many people treat fiscal rules as tablets of stone. It’s silly that government tax policy from one year to the next seems to hinge on how right or wrong the OBR’s economic forecasts are.

Yet all this stuff, silly as it might all seem, is taken quite seriously by markets right now. They look at the UK, see an outlier, and tend to focus more than usual on black holes. So I’m afraid we’re going to be talking about “black holes” for quite some time to come.

UK

Diogo Jota: Liverpool players join mourners as Premier League star and his brother Andre Silva buried in Portugal

Published

10 hours ago

July 5, 2025

admin

Diogo Jota: Liverpool players join mourners as Premier League star and his brother Andre Silva buried in Portugal

Liverpool players past and present have joined the family and friends of Diogo Jota and his brother Andre Silva for their funeral in Portugal.

A service was held in the Igreja Matriz de Gondomar church in their hometown of Gondomar near Porto in northern Portugal on Saturday morning.

Mourners lined the streets and some in the crowd clapped as the brothers’ coffins were carried into the church.

The funeral – in pictures

Jota, 28, leaves behind his wife of only 11 days, Rute Cardoso, and three young children.

His younger brother, 25, was an attacking midfielder for Penafiel in the second tier of Portuguese football.

Liverpool manager Arne Slot, captain Virgil Van Dijk and teammates including Andy Robertson, Conor Bradley, Ryan Gravenberch, Cody Gakpo, Curtis Jones, Darwin Nunez and Joe Gomez were seen at the service.

Former teammates Jordan Henderson, James Milner and Fabinho were also there.

Van Dijk carried a red wreath with Jota’s number 20, while Robertson had a wreath featuring number 30, Silva’s number at Penafiel.

Some of Jota’s teammates in the Portuguese national side also attended, including Bruno Fernandes, of Manchester United, Ruben Dias and Bernardo Silva, of Manchester City, Joao Felix and Renato Veiga, of Chelsea, Nelson Semedo, from Wolves, Joao Moutinho and Rui Patricio.

Ruben Neves was one of the pallbearers after flying in from Florida where he played for Al Hilal in the Club World Cup quarter-final on Friday night.

‘More than a friend’

In a post published on Instagram before the service, he told Jota he had been “more than a friend, we’re family, and we won’t stop being that way just because you’ve decided to sign a contract a little further away from us!”

Jota’s fellow Liverpool midfielder, Alexis Mac Allister, said on Instagram: “I can’t believe it. I’ll always remember your smiles, your anger, your intelligence, your camaraderie, and everything that made you a person. It hurts so much; we’ll miss you. Rest in peace, dear Diogo.”

Porto FC president Andre Villas-Boas and Portugal national team manager Roberto Martinez were also in attendance.

‘With us forever’

Speaking after the ceremony, Martinez said the period since their deaths had been “really, really sad days, as you can imagine, but today we showed we are a large, close family.

“Their spirit will be with us forever.”

The service was private, but the words spoken by the Bishop of Porto, Manuel Linda, were broadcast to those standing outside the church.

He told Jota’s children, who were not at the service, that he was praying for them specifically, as well as their mother and grandparents.

“There are no words, but there are feelings,” he said, adding: “We also suffer a lot and we are with you emotionally.”

The brothers died after a Lamborghini they were travelling in burst into flames following a suspected tyre blowout in the early hours of Thursday morning.

No other vehicles are said to have been involved in the incident.

Liverpool have delayed the return of their players for pre-season following Jota’s death and players past and present paid tribute to him and his brother on social media.

Flowers have been left outside Anfield, where flags have been lowered to half-mast and all club shops, museums and tours have been closed until Monday.

UK

Rachel Reeves hints at tax rises in autumn budget after welfare bill U-turn

Published

13 hours ago

July 5, 2025

admin

Rachel Reeves hints at tax rises in autumn budget after welfare bill U-turn

Rachel Reeves has hinted that taxes are likely to be raised this autumn after a major U-turn on the government’s controversial welfare bill.

Sir Keir Starmer’s Universal Credit and Personal Independent Payment Bill passed through the House of Commons on Tuesday after multiple concessions and threats of a major rebellion.

MPs ended up voting for only one part of the plan: a cut to universal credit (UC) sickness benefits for new claimants from £97 a week to £50 from 2026/7.

Initially aimed at saving £5.5bn, it now leaves the government with an estimated £5.5bn black hole – close to breaching Ms Reeves’s fiscal rules set out last year.

In an interview with The Guardian, the chancellor did not rule out tax rises later in the year, saying there were “costs” to watering down the welfare bill.

“I’m not going to [rule out tax rises], because it would be irresponsible for a chancellor to do that,” Ms Reeves told the outlet.

“We took the decisions last year to draw a line under unfunded commitments and economic mismanagement.

“So we’ll never have to do something like that again. But there are costs to what happened.”

Meanwhile, The Times reported that, ahead of the Commons vote on the welfare bill, Ms Reeves told cabinet ministers the decision to offer concessions would mean taxes would have to be raised.

The outlet reported that the chancellor said the tax rises would be smaller than those announced in the 2024 budget, but that she is expected to have to raise tens of billions more.

It comes after Ms Reeves said she was “totally” up to continuing as chancellor after appearing tearful at Prime Minister’s Questions.

Criticising Sir Keir for the U-turns on benefit reform during PMQs, Conservative leader Kemi Badenoch said the chancellor looked “absolutely miserable”, and questioned whether she would remain in post until the next election.

Sir Keir did not explicitly say that she would, and Ms Badenoch interjected to say: “How awful for the chancellor that he couldn’t confirm that she would stay in place.”

In her first comments after the incident, Ms Reeves said she was having a “tough day” before adding: “People saw I was upset, but that was yesterday.

“Today’s a new day and I’m just cracking on with the job.”

Sir Keir also told Sky News’ political editor Beth Rigby on Thursday that he “didn’t appreciate” that Ms Reeves was crying in the Commons.

“In PMQs, it is bang, bang, bang,” he said. “That’s what it was yesterday.

“And therefore, I was probably the last to appreciate anything else going on in the chamber, and that’s just a straightforward human explanation, common sense explanation.”

UK

Diogo Jota and Andre Silva’s funeral in pictures

Published

14 hours ago

July 5, 2025

admin

Diogo Jota and Andre Silva's funeral in pictures

The family and friends of Diogo Jota and his brother Andre Silva have been joined by Liverpool stars past and present and other Portuguese players at the pair’s funeral near Porto.

The Liverpool forward, 28, and his brother died in a car crash in Spain on Thursday.

Pictures below show the funeral at the Igreja Matriz de Gondomar church in the town of Gondomar near Porto. Click here for our liveblog coverage of the day’s events.