UK shadow chancellor Rachel Reeves has made an eye-opening commitment. She pledges to “defy” the negative economic projections that have gripped the country. Reeves is preparing for an important budget presentation in mid-June. She inherits a deeper-than-expected hole in public finances, though she’s confident the country can weather these disasters without turning to austerity.
Reeves’ commitment comes at an important time as the OBR has recently downgraded its productivity forecasts by 0.3 percentage points. This push at the federal level foreshadows some troubling times ahead. This downgrade would leave a £20 billion hole in sticking to her tax and spend rules. This convergence only adds to the already challenging fiscal environment. Still, Reeves is resolute in her refusal to be beaten by these forecasts.
In her first budget announcement last year, Reeves proposed £40 billion in tax increases. This plan did not start with this government. She has firmly stated that she is “not coming back” for additional tax increases, signaling a shift towards fostering economic growth rather than imposing further financial burdens.
“I don’t need a spreadsheet to tell me that too many working people in Britain feel the economy is unfair and does not work for them, with the cost of living still bearing down on family budgets,” – Rachel Reeves
Reeves be recognized for recognizing the headwinds still facing our country and our economy, to right the economy. She unapologetically pins the blame for today’s economic strife on the previous Conservative government. She too points to the impact of Brexit and the Covid pandemic. This lens intends to both push accountability from her predecessors and build public support for her future economic plan.
Reeves has been upfront about the dismal productivity track record left for his administration by predecessors. She contends that this dismal performance has continued since the great recession, styming recovery and economic growth. By focusing on these harms, she seeks to shift the prevailing story to one that centers the call for bold, transformative policies.
“Those conclusions [by the OBR] will be delivered at the budget next month and I am not going to pre-empt them. But I am going to be candid now that the productivity performance we inherited from the previous Conservative government and since the financial crisis has been too weak,” – Rachel Reeves
As she drafts her first budget, Reeves is likely to face pressure to play defense against forecasters’ worst-case predictions. Her fiscal rules are written for one audience only—to reassure those global financial markets which decide whether the UK is credibly borrowing money or not. By taking these steps, she seeks to unlock investor confidence, grease the wheels for new economic activity, and get her commonwealth moving again.
While some critics argue that Reeves’ previous tax increases have deterred business investment and hindered job creation, she maintains that her decisions are necessary and justified. She knows that solving these fiscal challenges means making hard but just decisions.
“These decisions – and the decisions I will take at the Budget – don’t come for free and they are not easy, but they are the right, fair and necessary choices,” – Rachel Reeves
Reeves’ approach is a direct reflection of her commitment to building an economy that benefits every single one of her state’s citizens. Most importantly, she argues that social equity and fairness should be the key drivers of any smart, effective economic plan.