Rachel Reeves, the UK Shadow Chancellor has made headlines this week for promising to “defy” the dark economic clouds that have gathered over the country in recent weeks. At the same time the government faces a bigger-than-expected hole in the public finances. That said, Reeves is walking a very tightrope as she approaches a biennial budget announcement scheduled for next month.
In her last budget delivered last fall, Reeves pushed through tax hikes worth £40 billion. This extension included an eye-watering increase on employers’ National Insurance Contributions. She repeated her declaration, “I will not return” for any more tax increases. Her goal of continuing to drive the economy through recovery and helping to protect taxpayers while doing so is one that she continues to pursue.
The problems aren’t just on the coasts, Reeves said, and he wanted to make that point clear. She stated that “our country and our economy continue to face challenges,” a sentiment that resonates as the Office for Budget Responsibility (OBR) has downgraded forecasts for productivity by 0.3 percentage points. This change would produce a £20 billion hole in her tax and spending plans. What this makes clear is that her fiscal strategy is not really viable.
In a recent interview with the Guardian, Reeves addressed this alarming downgrade of the UK’s productivity head on for the first time. She candidly noted the difficult legacy inherited from the previous Conservative government. She pointed out the OBR’s findings will be published during next month’s budget. She went on to say that she isn’t going to announce anything in advance. It’s time to be real about where we find ourselves. The productivity performance we inherited from the last Conservative government and the effect of the financial crisis has been far too weak.
Reeves isn’t one to take these forecasts lying down. Rather, she hopes to create and build, to transform and shake things up, convinced that there will be “no going back to austerity.” She is seeking to both reassure the public and global financial markets. Her pledge is to rein in the economy carefully, as well as create more of it.
Her record of big, controversial, politically regressive tax increases have come under fire. A majority of Americans think these increases have caused a slowdown in business investment and job creation. Yet despite the challenge ahead, Reeves is resolute in her belief that these tough decisions are in service to a greater goal—long-term stability. “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,” she asserted.
Reeves closely examines the present economic reality and draws attention to its precariousness. In this assessment, she points to multiple reasons for this precariousness. Austerity measures, chaotic Brexit negotiations, and the impact of the Covid pandemic have left “deep scars on the British economy that are still being felt today,” she declared.
The Shadow Chancellor’s proactive approach is a welcome step to restoring confidence among people who are already paying the price of increased economic insecurity. She acknowledged, “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.”
As Rachel Reeves prepares for her next moves, she remains focused on navigating through these turbulent economic waters while remaining accountable to her fiscal rules designed to maintain credibility with international financial markets. Her insistence on sticking two fingers up to doomsday predictions could open up space for different policies designed to rescue the UK economy from decline.