Rachel Reeves warned by OBR that UK’s ‘scary’ borrowing binge shall be unaffordable

Rachel Reeves has been warned that Government borrowing is on a ‘very frightening’ path and risks becoming ‘unaffordable’ despite her claim that debt is set to fall.

The comments from the Office for Budget Responsibility (OBR) are the latest broadside following its bombshell revelation the Chancellor knew months ago that there was no black hole in this year’s public finances – but continued to paint a grim picture of the economy to justify possible income tax rises while plotting a welfare giveaway.

It led to calls for Reeves to be sacked for misleading the public and financial markets as savers drained record sums from stock market funds fearing a tax raid.

She faces a grilling by MPs on Wednesday over what a leading economist called an ‘unprecedented and unhelpful’ level of leaks and speculation in the run-up to the recent Budget. In it she repeatedly vowed to get debt and borrowing down. The OBR’s forecasts showed she had indeed met her fiscal rule of public debt falling as a proportion of GDP, or annual economic output, by the end of the decade.

But the OBR also said debt was on track to balloon from £2.8 trillion this year to £3.5 trillion in 2031 while the interest on that borrowing will climb to a cumulative £750 billion – enough to fund four years of spending on the NHS and social care.

‘For many years the trajectory of Government debt has been up and up and up,’ the OBR’s Professor David Miles told MPs on the Treasury Select Committee last week.

In the red: Chancellor Rachel Reeves raised spending in her recent Budget last month

‘On current tax policies and spending, if they just continue into the future, the stock of debt relative to GDP will rise inexorably and get to a level that clearly is unsustainable within a few decades.

‘At some point there needs to be a sustained effort not just to have the stock of debt rise and rise and rise, then turn down ever so slightly five years down the road, but something much more significant than that. Otherwise, the thing will become unaffordable and unsustainable.’

An OBR report found that debt, which is nearly 100 per cent of GDP, could exceed 270 per cent of annual output by the mid-2070s if polices remain unchanged – a scenario Miles described as ‘very frightening’.

‘This is a serious issue because of the amount we pay on debt interest – and resilience if we have future shocks,’ said committee member John Grady, a Labour MP. ‘We never actually seem to repay any debt. It seems to get bigger all the time.’

At this week’s hearing Reeves will face questions into why she is borrowing more in the short term to fund welfare spending rather than growth, while ‘backloading’ £26 billion of extra taxes towards a general election due by mid-2029.

She will also come under scrutiny over pre-Budget leaks to the media, which the Treasury is investigating, and which the Financial Conduct Authority may investigate, too.

Ruth Curtice, head of the Resolution Foundation, told MPs: ‘The speculation and pre-briefing in the run-up to this Budget was unprecedented and unhelpful.’ Helen Miller, of the Institute for Fiscal Studies, said the leaks were ‘unusual and concerning’ and had ‘held back real economic activity’.

The OBR itself is also under fire for accidentally leaking the Budget’s key contents on its website, forcing chief executive Richard Hughes to quit.

He had revealed the OBR had told Reeves she was sitting on a £4.2 billion surplus, but the Chancellor did nothing to dispel the idea of a £30 billion shortfall that she would have to fill with tax rises.