According to a senior government official, Rachel Reeves' recent Budget is “very, very different” from the mini-Budget introduced by Liz Truss two years ago. Chief Secretary to the Treasury Darren Jones made these remarks to help stabilize markets following an increase in the cost of government borrowing and a decline in the value of the pound after Wednesday’s Budget announcement.

The chancellor’s plan revealed a significant rise in government borrowing aimed at funding various spending initiatives, raising concerns that additional funds may be necessary. Jones emphasized on BBC that new regulations have been implemented to ensure that public service expenditures are supported by tax revenues rather than relying solely on monthly borrowing.

He noted that investors typically respond to Budgets since they provide a wealth of new information. Acknowledging the unease stemming from previous government actions under Truss, he asserted that robust fiscal rules are now in place. These rules stipulate that ongoing spending for public services must come from tax income rather than continuous borrowing, which characterized the last administration’s approach. Additionally, a strong investment policy ensures that while investments are made, the debt diminishes as a proportion of economic size.

On Thursday, interest rates—specifically the yield that the government pays lenders for borrowing over ten years—rose to its highest level in a year before experiencing a slight decline on Friday. This increase in borrowing costs is significant as it not only raises government expenses but also influences rates for everyday loans and mortgages.

However, it’s crucial to view these market fluctuations within context. Since Wednesday, the effective interest rate on government borrowing increased by nearly 0.25 percentage points, with the pound declining by less than 1 percent. These changes are minor compared to those observed following Truss' mini-Budget. For instance, while the pound fell by 0.8% against the dollar to reach a two-month low, it had plummeted 8% against the dollar after Truss’s announcement, hitting an all-time low.

There has also been an overall rise in borrowing costs globally over the past month, primarily driven by trends in the US market. The increase in what it costs for the government to borrow indicates that investors perceive lending money to it as riskier. On Thursday, Sir Keir Starmer’s spokesperson noted positive feedback from organizations like the IMF regarding the government’s approach. In her Budget announcement, Reeves outlined nearly £70 billion in additional annual spending, financed through tax hikes for businesses and further borrowing measures.