For Rachel Reeves, last week’s IMF gathering in Washington DC offered a reprieve from domestic woes. The Chancellor, who noted at the British Embassy that she is the second longest-serving G7 finance minister, enjoyed admiring comments from counterparts about the trade deals the UK has struck with the likes of India.
Back at the Treasury, Reeves must contend with less welcome realities: government borrowing reached a five-year high in September of £20.2bn, a number that will feed into the OBR’s pre-Budget forecast (which the Chancellor received the second draft of yesterday). The final version, due on 21 November, five days before the Budget, will determine the size of the “black hole” that she must fill through tax rises and spending cuts (which economists estimate at £20-30bn).
With that in mind, Reeves will today announce her intention to cut £6bn of “pointless” red tape from British business. The hope is that the OBR will positively “score” the new measure, limiting the scale of the fiscal gap.
The riposte from the Conservatives is a familiar one. “It is just embarrassing when this government talks about cutting red tape whilst simultaneously imposing an extra 120,000 words of new employment and union rules and layering on green energy levies which are crippling British business,” declared shadow business secretary Andrew Griffith.
After Angela Rayner’s departure from government some questioned whether the Employment Rights Bill, which will cost firms around £5bn, would be subject to Reeves’ deregulatory drive. But those close to the Chancellor offer a robust defence of the new law: it will raise productivity by giving workers more security; it was signalled in advance in Labour’s manifesto; and they have consulted with businesses on key aspects of the bill (workers will, for instance, be subject to a nine-month probation period).
As Reeves surveys the post-conference landscape she is confident about her Budget dividing line of choice: austerity vs investment. Both the Conservatives and Reform, the Chancellor believes, have left themselves exposed.
“You’re not going to be able to make £46bn of savings without cutting schools and hospitals, that is very simple,” a Reeves aide says of the Tories’ plans.
As for Reform, expect the Chancellor to invoke regularly the woes of Kent County Council where the party is set to raise council tax after a “Doge-style” savings drive failed. “A lot of people are saying they’d do better but they can’t deliver,” an ally surmises.
This is the Chancellor’s pitch: that as others indulge in fiscal fantasies, only she offers realism. Expect calls from the likes of Tony Blair to cut the 40p income tax rate to be rejected as undeliverable in the current climate.
But as the Greens surge, here’s a different challenge for Reeves. Even before the Budget she has made her defining choice: that taxes, already at a postwar high, will again rise to fund higher spending. A different chancellor, as Blair suggests, might well have chosen a different path. Yet Reeves’ reward for raising scores of taxes on the wealthy, loosening her fiscal rules and increasing spending by over £300bn has been the opprobrium of the left. Can she ever change that?
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.
[Further reading: Great Britain’s failed state]
Content from our partners
Related
