Reeves claims she's balancing the books - but sky-high bond yields tell a different story, says ALEX BRUMMER
The Chancellor's spending review is being billed by Labour as a signal moment for a government that is haunted by banana skins of its own making.
It paints events as a moment for national renewal after 14 years of Tory chaos. It is nothing of the kind.
An analysis by the Institute for Fiscal Studies shows, despite the hype and hand-outs for favoured constituencies, Rachel Reeves barely moved the dial on capital investment spending.
All she did was maintain capital budgets, such as those for science and tech, at the same 'high' level of national income as Jeremy Hunt, the most recent Conservative Chancellor. IFS's director Paul Johnson doesn't pull his punches.
He says if anyone was 'baffled' by the Chancellor's speech 'so were we'. He goes on to suggest that it wasn't a serious effort to provide useful information to anybody.
It also exposed Reeves's ineptitude in framing arguments. There was no attempt to elevate and explain the spend, with focus on the white heat of technology, in terms of the nuclear, digital, and biotech revolution which will change Britain forever.
Instead, there was revived talk of 'securonomics' (buried since Labour has been in office) and misleading crowing about the state of the economy.
The boast that the UK was the fastest-growing economy in the G7 in the first quarter of the year was accurate. But as Reuters reported yesterday it was a case of 'pride comes before a fall'.
Reeves and her team must have had early sight of the April growth data which showed output shrank by 0.3 per cent. A big factor was Trump's tariff war, which caused car, steel and other exports to stumble.
One might have thought someone at the Treasury, or a special adviser, might gently have suggested the G7 comparison was a rhetorical trap which might have been avoided. The April data may be rogue because of Trump tariff uncertainty.
The Government hopes the trumpeted trade accord with the US will soon come to fruition and the UK's upmarket car makers – Jaguar Land Rover, Bentley, and Rolls-Royce and the more eclectic Mini – will soon be back to normal business.
However, it will take time for the logistics and supply chain to be revised. The downturn also was partly the result of policy.
The end to concessions on stamp duty predictably produced a lull in home sales, despite the good househunting weather and the easing of the bank rate.
Tax does make a difference. It is not wise for a government making a big bet on the housing market to bypass it as a recovery tool by punishing homebuyers, especially younger people seeking the first rung on the ladder.
There is one G7 table which Rachel Reeves didn't mention.
The Chancellor believes her fiscal rules, which require current spending to be matched by taxation but allow borrowing for investment, have secured the UK's budget after the Liz Truss disorder.
Markets don't believe it. The yield on Britain's ten-year bond – or gilt – at 4.5 per cent in latest trading is the highest among the rich Western democracies.
Reeves makes the reasonable case that UK yields move in lockstep with those in New York.
There is, however, a serious flaw in the thinking. The Chancellor appears to believe that if the current budget is in balance, it is fine to borrow to invest.
That may be the case in Japan and Germany, where bond rates are 1.46 per cent and 2.53 per cent respectively, because their governments' overall interest bill is, by UK standards, under control.
In Britain's case, every pound that is borrowed for a new roundabout or bypass behind the Red Wall comes with interest at high rates.
So the extra borrowing for Labour's £2 trillion or so of capital spend inflates the current budget via borrowing charges. In the autumn, the Treasury estimated the interest bill for 2025-26 at £126billion.
If gilts had a similar yield to the German bund there would be an extra £60billion or so for education, health or even an end to the freeze on income tax thresholds which punish hard work and enterprise.
Britain's national accounts do not provide a free pass for capital projects.
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Carla Fine, a local who is an expert on the matter, told The Telegraph at the time that it was a 'suicide machine'. It only reopened last October after netting was installed. 'The project met all the safety standards, and actually it went above them. It was just an extremely tragic, sad use that the project got put to,' Heatherwick told the Financial Times in 2023. 'Nobody predicted Covid and what that would do for people's mental health.' His current projects include transforming the Kensington Olympia in West London and turning the capital's BT Tower into a high-end hotel. Not a trained architect himself (but the employer of large numbers of them at his studio), Heatherwick has said that we are in the grip of an 'epidemic of boringness', with soulless glass-and-steel buildings populating cities all over the world. Heatherwick's eccentricity, which has been a characteristic for decades, is almost designed to attract opprobrium or eye-rolls from others in the field. As he finished his postgraduate studies, rather than make a business card Heatherwick made ice lollies that had his phone number on the stick; on various occasions he has shipped a snowball to China so that somebody there could experience British snow, and taken a kebab to Italy for someone else. 'I'm not a fan, because I think he doesn't know the difference between a building and a CD rack,' says Ellis Woodman, an architect and the director of the Architecture Foundation. 'There's no sense of scale, no sense of an urban idea that the buildings are contributing to. They disregard architectural history or the character of the spaces in which they stand. [The Google building] is not a building that's interested in making relationships with things around it. The work is always the most important building on its site, whatever he's doing. There's never a sense that the role of a building might be to contribute to the definition of a space with other buildings.' Heatherwick has become a big brand in the building world, in the way that Norman Foster and Zaha Hadid did before him. Woodman says that, with the quasi-utopian ideals he set out in his 2023 treatise Humanise, Heatherwick is 'carrying on that 'architecture-as-a-marketing tool' tendency'. 'He's not seriously engaged with the problems of housing or sustainability,' Woodman adds. 'It's a succession of projects like the Vessel, which one might ask if the world ever really needed.' Others in the design world reckon that Heatherwick's regular criticism by architects stems from a resentment that an interloper could gatecrash their industry without having to go through the same formal training. 'I'm very 'pro' him. He's a very creative and inventive figure, but he's divisive because he was trained in industrial design in Manchester, not in architecture,' says Charles Saumarez Smith, the former director of the National Gallery and National Portrait Gallery who is a distinguished historian of art and design. 'Architects view themselves in a professional way, and so obviously have not been so enthusiastic about him being globally successful as he has been as an architect. I think that is at the root of it.' Saumarez Smith tells me that he thinks Heatherwick's Google building is 'mind-boggling' and 'vast, but in a way it manages to disguise its scale. I'm looking forward to seeing it in more detail when it's finished'. How long before the Google building is finished, and what it will be like when it is, is anyone's guess. 'You can't fully know whether something's going to work until it's finished,' Heatherwick told The Telegraph in a 2018 interview. 'Anyone who says otherwise is lying. I get worried when my team aren't worried. Worry is a useful energy.' One wonders if Heatherwick feels worried about the Google HQ at the moment.
