by Rachel Reeves had a rocky start as Chancellor. The decision to remove universal winter fuel payments has been criticized across the political spectrum. He was attacked by everyone from Union leaders to his predecessor as Chancellor, Jeremy Hunt. Even Labor stalwarts such as Ed Balls seem concerned about her approach. Canterbury MP Rosie Duffield cited the decision as one of the reasons she resigned as Labor minister.
The chancellor likes to present herself as a careful strategist, skilled at thinking several steps ahead in their beloved chess games. She also spends her time working at the Bank of England, claiming that she gained experience studying the workings of the Japanese economy. But it is difficult to discern any clear strategy in Reeves’ approach. What is her main economic argument? Nor does Reeves seem to have learned much from what went wrong in Japan’s lost decade. Apart from the growth she promised to promote while in Opposition, her rhetoric in Government has resulted in a drop in business and consumer confidence.
In less than a month she will stand to deliver her first Budget. She will also confirm the total expenditure cover for the coming years – that is the total amount of money available to the Government. His hand may be strengthened by improving economic forecasts. But to avoid real-term cuts in the Department’s spending and to fulfill its commitments it will have to get billions of pounds. She can raise that through taxation or borrowing.
Before the Election Reeves rejected changes to the so-called fiscal rules, which limit how much the Government can borrow. But will she break that promise? She seems tempted to borrow more to fund spending, especially since so many of the tax changes she proposed before the election have faltered. But borrowing will be at risk of higher interest rates, which will harm economic growth.
As Opposition she set up a series of fundraisers which she claimed would provide additional income for pet projects. It is now estimated that her proposed changes to private equity funds will cost the Exchequer money. Its suppression of non-periods is encouraging an exodus of wealthy foreigners. HM Treasury fears it would reduce the amount taken in taxation. The Conservatives tried to point out these dangers before the Election, but Reeves poo-pooed them.
The Chancellor is now apparently considering increasing National Insurance contributions for Employers. That would be a tax on jobs.
Within his department Reeves has also made a series of strange decisions
Reeves also considered a raid on personal pension tax relief. But she is said to have support now. Their thinking seems to be changing that the raid would mainly affect public sector workers. We know that injured pensioners are not a concern for the Chancellor. She seems unwilling to risk the wrath of public sector Union leaders.
She is complying with the wishes of Union leaders on public sector pay – agreeing to big rises for workers such as train drivers, while at the same time trying to claim she got a “black hole” in public finances from the last Government with inheritance. And she has allowed fellow ministers to address the Unions’ demands in other areas, for example by reducing strict school inspections. These things are important. School standards are critical to our long-term economic growth.
The Chancellor’s proposed increases in Capital Gains tax will stifle investment, stifle growth and – ironically – make it harder to achieve the green transition she is so determined to achieve.
One area where Reeves is willing to spend money after all is on Net Zero. Budgets were confirmed for foreign aid on climate measures, and for carbon capture and storage. In contrast she seems content to oversee the end of steel making in the UK, the collapse of the North Sea oil and gas industry, and the de-industrialization of Britain.
Within her department she has also made a series of strange decisions. Why on earth did she think it wise to hire one of her personal donors as a Civil Servant, without even confirming the donation to her Permanent Secretary? Why has she scheduled a conference to attract overseas investment on a date before her budget which will set the levels of taxation for this Parliament? And why, as Alastair Campbell said out loud, did she wait so long before delivering her first Budget?
In Opposition Reeves did a lot to address what she claimed was the corruption of the last Government. But in less than 100 days, she bent the rules on appointing an anti-fraud commissioner (as I argued here), and allowed an employee of a lobbying firm to organize her meetings with businesses at the People’s Party Conference Work in Liverpool.
The Budget will be a key point for the new Labor Government, which has been plagued by turbulent events in Downing Street and the ever-increasing cardiology scandal. In the past, Rachel Reeves has shown that she can be principled. Unlike Keir Starmer, she refused to serve under Jeremy Corbyn’s leadership. But she will need more than a new hairstyle to change public perception of her chaotic start as chancellor.
Henry Newman is a former special adviser to Boris Johnson and Michael Gove
