UK finance minister Reeves says she will stick to fiscal rules despite global turmoil

By William Schomberg

LONDON, March 23 (Reuters) - Britain will stick to its fiscal rules despite global upheaval, finance minister Rachel Reeves said on Sunday, raising the prospect of thousands of public sector job cuts in this week's budget update which is likely to include further savings.

Last October, in her first full budget, Reeves sought to win the trust of investors by pledging to bring day-to-day spending into balance with tax revenue by the end of the decade.

But she is believed to have been knocked off course by slow economic growth and higher borrowing costs.

Employers say a tax hike for them will hit hiring and a potential global trade war triggered by U.S. President Donald Trump's import tariffs has led to downgrades to the international outlook.

"The world has changed. We can all see that before our eyes and governments are not inactive in that," Reeves told Sky News. "We'll respond to the change and continue to meet our fiscal rules."

On Friday, British debt costs jumped after heavy borrowing figures, showing nervousness among investors about the ability of Prime Minister Keir Starmer's government to fix the public finances with the economy stuck in a slow gear.

Last week, the government announced cuts to welfare spending to save around 5 billion pounds ($6.5 billion) a year, angering some lawmakers in Starmer's centre-left Labour Party.

Reeves said 10,000 public sector jobs could be cut under a plan to lower civil service costs by 15% by the end of the decade and save over 2 billion pounds ($2.58 billion) a year, adding it was not right to keep COVID-era staffing increases.

More than 500,000 people work in the civil service.

A union leader representing public sector workers accused Reeves of announcing "an arbitrary figure" which would hurt the public services that Starmer and Reeves promised voters they would improve in last year's election.

"After 15 years of underfunding, any cuts will have an impact on frontline services," Fran Heathcote, general secretary of the Public and Commercial Services Union, said.

FOCUS ON PRIORITIES

Reeves is expected to announce further measures in her Spring Statement on Wednesday to restore her 10 billion pounds ($13 billion) of room for manoeuvre to meet her fiscal targets.

Asked by Sky News about possible spending cuts, Reeves said public spending was still expected to outpace inflation in each year of the current parliament.

"But as a government, we have to decide where that money is spent, and we want to spend it on our priorities," she said.

The government has increased spending on defence in response to Trump's calls on Europe to do more to protect its own security. Further increases are planned for the coming years.

With growth forecasts likely to be slashed on Wednesday, Britain is hoping it can avoid the brunt of import tariffs that the Trump administration is considering.

"President Trump is rightly concerned about countries that run large and persistent trade surpluses with the U.S. The UK is not one of those countries," Reeves told the BBC on Sunday.

Asked whether Britain could offer to end its Digital Services Tax levied on large tech companies such as Google and Facebook to win favour in Washington, Reeves said talks were ongoing.

"We're in discussions at the moment around a whole range of things around tariffs with the United States but we will continue to operate on that principle that you should pay taxes in the country in which you operate," she said.