Treasury under siege: Government must squash the moron premium and stop debt dragging us down, says ALEX BRUMMER

Rachel Reeves’ standard response to adverse data or criticism is to insist that economic stability is non-negotiable.

The reality is that while there is a measure of political stability – an unpopular Labour government is still in the foothills – fiscal policy is an unholy mess.

In 14 months in office, there have been a bunch of fiscal events and a series of U-turns. Inflation has surged and the cost of funding the nation’s borrowing has soared to £100billion, or 10 per cent, of the budget.

The Prime Minister is belatedly seeking to seize back control by choosing to build his own economic brains trust.

He has recruited a prominent name in Minouche Shafik as his economic adviser.

Shafik has a decorous CV, but in her most notable economic job, as a deputy governor at the Bank of England, she was sub-octane.

Debt crisis: In 14 months in office, Chancellor Rachel Reeves (pictured) has seen Inflation surge and the cost of funding the nation’s borrowing soar to £100bn or 10% of the budget

The switch of Darren Jones from the Cabinet job of Chief Secretary to the Treasury (historically a powerful role) to the bear pit of Number 10 is high-risk.

Markets are unimpressed. The gap between bond yields in Britain and the rest of the G7 widened and is now at its highest level on record.

This at a moment when market anxiety about the public finances and body politic in France is at a heightened level.

The addition of Shafik at Number 10 and former Resolution Foundation chief Torsten Bell at the Treasury in the build-up to the Budget is an attempt to circumvent pratfalls.

There has been neglect at the Treasury of behavioural economics. The most notable example is the failure to understand that raising employers’ National Insurance and the minimum wage would damage jobs.

Payrolls have dropped by more than 160,000 between July 2024 and the same month this year. Working people have not been protected.

Much of the focus since the summer has been on wealth taxes. Both Bell and Shafik have form at the Resolution Foundation as campaigners against generational inequality. But as we know from last year, twiddles with taxes on the better off have consequences.

The top 10pc of UK citizens already fund 60 per cent of the nation’s tax take. Punishing higher earners or those who are asset rich will only drive enterprise overseas and won’t boost growth.

Reforming housing taxation might appear obvious, given current flaws. However, the impact on Labour’s ambitions to build more and better will be considerable.

If the Government really wants to savage the ‘moron premium’ and bring down the cost of funding the debt, it needs to bring the current spend on welfare and the NHS under control.

Much of the recent speculation that Britain might be forced to go to the International Monetary Fund (IMF) for a bail-out is nonsense.

But what the IMF can do, as it did with Greece in 2010, is force upon governments the harsh domestic policy remedies to reduce borrowing which politicians refuse to take.

Wow, what an amazing change! It is three months since the Czech sphinx Daniel Kretinsky was allowed by a feeble government and flaccid board to take control of Royal Mail-owner International Distributions Services, and the postal service is back in profits.

That is if one excludes redundancy costs, of which we can expect much more in the future.

The real shadow over the company’s finances is the high cost of an extra £3billion of borrowing – a debt which Kretinsky and his shadowy backers at the EP Group raised to buy Britain’s historic post.

One only needs to read across to the debt mess at Thames Water and the struggles at supermarket Asda under private equity ownership to know the trouble that lies ahead.

Doubtless it won’t be long before profitable assets, such as unregulated European parcels offshoot GLS, is hived off.

That will leave the Royal Mail and an oversized workforce hopelessly exposed.

Maybe the refreshed economic brains trust at Number 10 will listen to JD Sports chairman Andrew Higginson. He was among the few FTSE 100 bosses to support Labour before last year’s election.

Higginson tells the Daily Mail that he fears changes to business rates will add to the burden on anchor retail stores, lead to closures and devastate the High Street.

Don’t hold your breath.