Rachel Reeves announces public spending cuts in Commons statement
Rebuttal: ALEX BRUMMER
With her dogmatic and dishonest spin, Rachel Reeves is in danger of pounding her growth agenda to rubble, writes ALEX BRUMMER
Labour’s mask has slipped. And the voters who gave Sir Keir Starmer such a generous majority have been confronted with the ugly face of cheap politics – skewed priorities and partisan giveaways.
How can a huge £9.4 billion payout to Labour-supporting state-sector unions be judged as anything but cynical?
And why is a government that promised to rebuild Britain for all its citizens, protecting the billions we spend on asylum seekers instead of our own pensioners?
Yet the very worst aspect of the hollow political theatre we saw on Monday with Chancellor Rachel Reeves’ ‘spending audit’ has barely earned a mention – and that’s the betrayal of the productivity and prosperity that Britain so desperately needs.
The new government claims that its core mission is ‘restoring growth’ – as it should be. The nation would be delighted if Britain’s first female Chancellor were to succeed.
Miserable
But instead of speaking to the country in a spirit of optimism, Reeves was needlessly and destructively miserable.
She claimed, for example, that she had inherited the weakest economy since 1945, which is plainly untrue. She found a Tory cover-up when there has been no such thing. As for the stable and expanding economy bequeathed to her by former Conservative Chancellor Jeremy Hunt . . . not a word.
Reeves has chosen to pretend that our improving economic picture is a mirage. But as Hunt, now shadow chancellor, has reminded us, Britain returned to growth in the first two quarters of the year. After a difficult spell, the economy is rebounding.
Only yesterday, Lloyds Bank reported that business confidence has hit a seven-year high. Inflation has returned to the 2 per cent target set by the Treasury – a remarkable achievement given where we were. Government borrowing is on a downward trajectory and UK debt levels – at below 100 per cent of national income – are lower than those of the U.S., Japan, France and Italy.
Baked-in Tory tax increases stretching well into the future, together with Starmer’s election victory, had already delivered the stability which the City traders (and, in particular, the bond markets) so crave.
The public finances are by no means disastrous. Yet Reeves is obsessed with what she calls ‘fixing the foundations’. It shows that the new occupant of Number 11 is no more than a fiscal obsessive living in fear of financial markets, which is why she has chosen to axe key infrastructure projects and hammer savers – an attack on two key engines of future prosperity.
The faux catastrophe ‘discovered’ by Reeves is simply an excuse for raising taxes still further – taxes which already soak up 37 per cent of national income – in order to buy peace with Labour’s trade union paymasters.
The risk is that by showing such generosity, especially to the troublesome junior doctors, the Chancellor will simply store up competing demands from other colleagues in the NHS.
One of the most bewildering things is that Reeves’s gloomy audit flies in the face of the pro-growth promises outlined by the Government in its first three weeks.
On her first working day at the Treasury, for example, Reeves gathered leading figures in business and the City to tell them Labour would drive a coach and horses through Britain’s planning system to build 1.2 million homes. A new ‘National Wealth Fund’, designed by former Bank of England governor Mark Carney, would unlock private sector cash and investment. Ed Miliband’s Great British Energy would create a green industrial revolution.
I now fear that such initiatives will be side-lined, thanks to Reeves’s misplaced determination to be an Iron Chancellor – and be seen as such.
Already, the signs are far from encouraging. Among the keys to expanding Britain’s economy, for example, is a drive to improve our infrastructure so that, among other things, people and goods can move more efficiently.
It is, then, an act of sabotage to cut the very projects which could break Britain’s cycle of feeble productivity.
Reeves has moved to cancel several imaginative transport schemes, including the controversial but much-needed A303 Stonehenge tunnel — a serious blow to the struggling economy in the South-West.
Also cancelled is an important bypass on the A27, a key route to the valuable port of Southampton. Funds to restore previously axed and abandoned railway lines have been scrapped.
And there is no mention of what the Government plans to do about connecting the stump of the HS2 high-speed link to Birmingham from where it ends at present — a station at Old Oak Common, west of London — to the centre of the capital, where people wish to go.
If we are to take Reeves’s £22 billion budget gap seriously then the £5.5 billion of cuts in the 2024-25 fiscal year announced this week, plus the £8.12 billion of reduced outlays projected for 2025-26 cannot be enough
Sabotage
Labour’s manifesto promised not to raise VAT, income tax or national insurance — but taxes will inevitably rise all the same.
Reeves has already begun consultations on ending what remains of non-dom status, and is proposing to raise taxes on Britain’s booming private equity industry.
Higher capital gains and inheritance taxes are also thought to be in prospect. These would hit ordinary middle-income households. The Chancellor is also considering removing some tax relief from pension savings.
Attacks on the wealthy, who have accumulated capital as a result of big rises in asset prices (property and stocks and shares) in recent times, will be popular with Labour’s socialist base.
But how will such policies help growth?
Starmer and Reeves claim they want to galvanise investment in Britain’s brilliant AI, tech, gaming and life-sciences industries and reinvigorate the London stock market.
Yet taxes on the richest in society will only drive capital overseas and make it even harder for the new government to unlock the private sector money it seeks for its green revolution — not to mention the new National Wealth Fund established to finance innovation and pioneering technologies.
There is one potential ray of hope to come from Reeves’s former employers at the independent Bank of England.
Doubt
Today, the Monetary Policy Committee headed by Governor Andrew Bailey begins a meeting which could cut interest rates from 5.25 per cent, now that inflation is back under control.
A rate reduction would be a boost for struggling businesses, help households with mortgages and cut the cost of servicing Britain’s national debt. It would be a huge boost to Britain’s output.
Now, though, Reeves has sown seeds of doubt in the City. The concern is that her inflation-busting pay deal for public sector employees will lead to demands from other groups of workers.
A cautious Bank of England, fearful of a ‘wage spiral’, could pull back from a knife-edge decision. Prolonging a period of higher borrowing costs would, among other things, do immense damage to the Government’s ambitious house-building plans.
Reeves has forgotten that the speediest and best way to deal with borrowing overshoots is to expand the economy, which in turn increases revenues for the Exchequer —and cuts welfare payments.
The whole growth agenda on which the new government was elected is being crushed by the Chancellor’s dogmatic and dishonest spin.
She is in danger not of fixing the foundations, but pounding them to rubble.
ALEX BRUMMER: Labour's mask has slipped. And the voters who gave Sir Keir Starmer such a generous majority have been confronted with the ugly face of cheap politics.
www.thisismoney.co.uk
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Conservative Party chairman Richard Holden called on Labour's Shadow Chancellor to 'correct the record' after she claimed that the economy was expected to be £40billion smaller in 2027 than was forecast in March.
Mr Holden said figures from the Office for Budget Responsibility this week showed that the economy was expected to be 0.6 per cent bigger in 2027 than had been predicted earlier this year – equal to an improvement of around £15billion.
In a letter to the Shadow Chancellor last night, Mr Holden said there appeared to be 'a £55billion gap between what you say and reality'.
He said Ms Reeves appeared to have failed 'either deliberately or recklessly' to take account of a major upward revision to the UK's past growth rates by the Office for National Statistics, which showed the UK had recovered from the pandemic quicker than either France or Germany.
Mr Holden wrote: 'At every opportunity the Labour Party resorts to scaremongering and defeatism – instead of celebrating the resilience of our economy and the strength of British businesses up and down the country.'
The Conservative Party have called on Labour's Shadow Chancellor to 'correct the record' after she claimed that the economy was expected to be £40billion smaller in 2027 than March forecast.
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