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The UK government is in something of a bind. While its borrowing costs have risen since the fall, the chances of meeting the main self-imposed fiscal rule – to borrow only for investment at the end of the decade – have decreased. The failure was met with harsh rhetoric from the government. Whether it comes from Prime Minister Sir Keir Starmer, Rachel Reeves, his chancellor, or their spokespeople, adjectives describing fiscal rules tend to shuffle between “IRON“and”not negotiable“. Their behavior is always “perfectly done“.

Sentiment improved in UK government bond markets last week, but many remain unconvinced. Ray Dalio, the billionaire founder of hedge fund firm Bridgewater Associates, was less impressed, saying gilts could be headed for a “death spiral“. Of course, this is an exaggeration, but his comments reflect a wider concern in financial markets that there is a gap between tough fiscal rhetoric and the reality of UK budget policy – and this is mainly of the current Labor government.

What is needed to provide the budgetary stability upon which the rest of the UK economy can be built is simple. No more rhetoric. There are no announcements of tighter fiscal policy now or in the near future. Instead, Reeves must implement the tax increases and spending plans outlined in October without any compromise on when they will be implemented in April.

These are big ones. Along with large and chaotic increases in employers’ national insurance, there has been a steady rise in income tax in the form of frozen allowances and far from costly increases in public spending. Together, the steps are put down the government owes a lot. The overall deficit is projected to decline from 4.5 percent of GDP in 2024-25 to 3.6 percent in 2025-26, while the current budget deficit, excluding capital investment, is set to decrease from 2 percent in GDP to 0.9 percent. at the same time.

This is an exercise in performance, not speaking. This reduction in borrowing is particularly unusual for UK governments – this will become clear in the summer if Reeves and his policies are on track. Success will immediately show the difference between fiscal policy in the UK and those of similar countries.

In recent years, US administrations have shown no ability to run a deficit below 6 percent of GDP, and no progress can be seen. The European Commission expects a deficit in the French budget exceeds 6 percent of GDP last year, with little hope of a political agreement to bring much progress. The German public financial base is strong, but its economy is weak. And the level of debt in the UK, although high, is still lower than in Italy.

Bond markets generally have a mind of their own, but it’s hard to single out the UK for special punishment when it’s a decent-sized country with the ability to pass legislation to impose fiscal consolidation and actually see it. This is what Reeves had to do. If growth suffers, the Bank of England is in a strong position to ease monetary policy and reverse fiscal tightening.

There are no guarantees in the business of attracting financial markets that they have more to lose if they bet against you. The UK government should also hope that consumers will start spending their new real incomes and boost growth. It must be shown that any expansion comes with some improvement in productivity growth. And that the increase in national employers’ insurance should not have a more damaging effect on jobs and prices than expected.

Nothing will be achieved with more talks about non-negotiable commitments to strong fiscal rules.

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