Reeves seeks headroom in budget to cover volatile bond markets

Rachel Reeves is aiming to create more “headroom” against her fiscal rules in November’s tax-raising budget, to cushion the UK against volatile government bond markets.

- Heather Stewart Economics editor

The chancellor met her first rule - to balance taxes and day-to-day spending - with just £10bn to spare in last autumn’s budget, and again in her spring statement.

That historically narrow margin has repeatedly left Reeves at risk of breaching her rules as a result of market pressures pushing up the cost of government borrowing.

The chancellor hopes that by accumulating more headroom, she can dampen incessant speculation about whether the rules will be broken in the Office for Budget Responsibility’s next forecast - and how the government will respond.

“We would like more headroom: we want to try to insulate ourselves better against the volatility in the bond markets,” said a Treasury source, adding that both tax increases and spending cuts were on the table.

However, with Labour trailing Reform in the polls, ministers are acutely conscious that following last year’s £40bn-a-year tax-raising package, another money-raising budget will be a hard sell with voters.