Government’s borrowing plan sends markets reeling

While it should initially soothe some of the recession we are already likely to be in, the huge borrowing has sent markets reeling.

It has been one of the worst days for UK government bonds in decades, with some of the biggest one-day hikes in the cost of borrowing since the 1990s.

The government had to tell the markets that it needed to borrow an extra 72 billion dollars this year, but did not publish the numbers behind that. Interest rates for British debt hit 4% earlier this week, having been 3.1% earlier this week, and 1.8% at the beginning of the leadership contest with Rishi Sunak.

The Treasury's predictions show how much tax revenue would be raised if the reforms were able to spur growth in the economy.

The table, while an aspiration that every chancellor and every politician seeks, has not convinced the markets. It is an assumption of extra tax revenue that has replaced actual tax.

The growth in the economy is a result of the increase in tax revenue over the long term. The details of that plan is not included in today's announcement. A tax cut that could be underpin such a plan is mainly what we got today, along with some interesting economic reforms for financial services and enterprise zones.

Many of the most important economic policies that could help boost growth were left unmentioned. When the Office for Budget Responsibility adjusted UK's long-term growth prospects for the last time, it was to cut them in July because of Britain's shrinking workforce. Maybe worker visas, skills, infrastructure and trade barriers for exporters to Europe will be addressed at some point in time. All contain growth-enhancing policy areas that will test the limits of the PM's acceptance of doing unpopular things.

The prime minister criticised bean counters in her leadership campaign. Today's plan shows only one side of the ledger. For a chancellor making a debut, it is usual to focus on fiscal credibility. The government has thrown the kitchen sink at it, but there are considerable risks in this plan. It should help growth upfront. There is a chance that the economy will be left with a temporary stimulus and a hangover from high debts, as global markets send the interest rates to the government rocketing. There are risks in the housing market as mortgage rates and commercial borrowing increase.

There are many gaps left to fill in this plan for growth. The government needs to increase growth in order to become a reality. The echoes of the last budget of this size in 1972, which led to an infamous boom and bust under chancellor Anthony Barber, will not be comfortable.