Rachel Reeves, the UK Shadow Chancellor, prepares to introduce Her Majesty’s Loyal Opposition’s own approach to economic policy. She’ll unveil it in her debut Budget on November 26th. Then came the least-welcome surprise of all, on October 3, the Office for Budget Responsibility’s (OBR) assessment of the state of the economy. That assessment, at times, decisively shapes her proposals. Reeves is trying to thread the needle on the politics of the emerging economic picture. She has said, “I’m focused on tax and spending,” which has led to speculation about increases in the state’s income or sales tax.
Reeves has been repeatedly asked whether she’ll need to raise taxes in her upcoming Budget. In an interview with Sky News, she called attention to extreme impacts of Brexit and austerity policies. She highlighted the previous administration’s disastrous mini-budget in the administration of former Prime Minister Liz Truss as a key driver of the current turmoil economic times.
“I will always make sure the numbers add up,” – Rachel Reeves
She is dedicated to fiscal restraint. Yet this has proved to be no easy task, as she has attempted to square the circle of restoring public finances while honouring her party’s manifestos pledges. The new Labour Party has promised to spare working people any new taxes. In their October spending plan, they pledged to not raise National Insurance and all Income Tax rates and committed to oppose increases in VAT as well.
Analysts expect a public finance hole in the range of £20 billion – £30 billion. Per the Times-Picayune, this has led to increasing speculation that Reeves would need to raise taxes or make deep spending cuts to cover this shortfall. So, unsurprisingly, a number of Labour MPs have argued that radical cuts to spending would be politically impossible, in the context of the current economic conditions.
In her short speech at the Labour conference last month, Reeves pointed to the “difficult choices” the government would have to make. She underscored her focus on safeguarding public dollars and steering away from high-stakes gambles. She has implied that cuts are inevitable. That leads to logical questions about what areas these cuts would target and how likely constituents, both socially and politically, would accept such cuts.
“Yes, a budget focuses on tax and spend and we’ll set out how we’re keeping a tight grip on public spending,” – James Murray
Opposition Leader Shadow Chancellor Sir Mel Stride condemned Reeves for her commitment to current levels of public spending. Rather than raising more revenue through higher taxes, he claimed, she should first deliver on getting the public to spend less of its money.
“Be in no doubt, this tax doom loop is down to the Chancellor’s economic mismanagement,” – Sir Mel Stride
To add to the mix, recent assessments from the International Monetary Fund (IMF) have raised the stakes of the economic backdrop. They suggest that the UK will be the second-fastest-growing developed economy this year. This tremendous growth comes with unique opportunities and challenges for Reeves as she gets her Budget laid out.