- Reeves falsely claims weak economy inheritance
- Labour’s £9.4bn union payout criticized
- Cuts vital infrastructure projects, risks growth
Labour’s mask has slipped. And the voters who gave Sir Keir Starmer such a large majority have been confronted with the nasty side of cheap politics: distorted priorities and political giveaways.
How can a massive £9.4 billion payout to Labour-supporting state-sector unions be described as anything other than cynical?
And why is a government that vowed to rebuild Britain for all of its inhabitants defending the billions of pounds spent on asylum seekers rather than our pensioners?
However, the worst component of the false political performance we witnessed on Monday with Chancellor Rachel Reeves’s’ spending audit’ has received little attention—the betrayal of the productivity and prosperity that Britain sorely needs.
The new government’s primary purpose is to “restore growth,” which is appropriate. The nation would be overjoyed if Britain’s first female Chancellor succeeded.
Miserable
However, instead of speaking to the country with positivity, Reeves was unnecessarily and destructively depressed.
She stated, for example, that she inherited the weakest economy since 1945, which is demonstrably false. She discovered a Tory cover-up that never existed. There is no mention of the stable and booming economy that previous Conservative Chancellor Jeremy Hunt left her with.
Reeves has decided to pretend that our better economic situation is a fantasy. However, as Hunt, the current shadow chancellor, reminded us, Britain returned to growth in the first two quarters of the year. Following a rough period, the economy is recovering.
Lloyds Bank announced that company confidence had reached a seven-year high only yesterday. Inflation has returned to the Treasury’s 2% objective, a great achievement given where we were. Government borrowing is falling, and the UK’s debt levels, which are less than 100% of national revenue, are lower than those of the United States, Japan, France, and Italy.
Baked-in Tory tax increases that extended well into the future, combined with Starmer’s election victory, had already provided the stability that City traders (particularly bond markets) demand.
The state finances could be better. However, Reeves is obsessed with ‘healing the fundamentals’. It demonstrates that the new occupant of Number 11 is nothing more than a fiscal obsessive terrified of financial markets. She has chosen to cancel vital infrastructure projects and punish savers – an attack on two critical engines of future prosperity.
The phony disaster ‘found’ by Reeves is simply an excuse to raise taxes even higher – currently account for 37% of national income – to appease Labour’s trade union paymasters.
The worry is that the Chancellor may merely store up competing requests from other NHS colleagues by being so generous, particularly with the problematic junior physicians.
One of the most perplexing aspects is that Reeves’ bleak assessment contradicts the pro-growth promises made by the government in its first three weeks.
For example, on her first day at the Treasury, Reeves met key business and City individuals to inform them that Labour would push through Britain’s planning system to build 1.2 million houses. A new ‘National Wealth Fund,’ established by former Bank of England governor Mark Carney, would free up private sector funds and investment. Ed Miliband’s Great British Energy would usher in a green industrial revolution.
I now fear that such projects will be sidelined due to Reeves’ misguided desire to be an Iron Chancellor – and be perceived as such.
Already, the indicators are not encouraging. One of the cornerstones of Britain’s economic growth, for example, is a push to improve our infrastructure so that people and commodities can travel more effectively.
Reducing the very projects that could break Britain’s cycle of low productivity is, therefore, an act of sabotage.
Reeves has moved to scrap many innovative transportation projects, including the contentious but necessary A303 Stonehenge tunnel, dealing a significant blow to the South-West’s beleaguered economy.
A crucial bypass on the A27, which connects to the valuable port of Southampton, has also been canceled. Funds for restoring previously closed and abandoned railway lines have been withdrawn.
There is also no indication of what the government intends to do to connect the stump of the HS2 high-speed link to Birmingham from where it currently terminates—a station at Old Oak Common, west of London—to the heart of the capital, where people want to go.
If we are to take Reeves’ £22 billion budget shortfall seriously, the £5.5 billion in cutbacks proposed this week for the fiscal year 2024-25, together with the £8.12 billion in decreased outlays forecast for 2025-26, will not be sufficient.
Despite Labour’s commitment to not raise VAT, income tax, or national insurance, taxes are expected to rise.
Reeves has already initiated talks on abolishing non-dom status, and he proposes raising taxes on Britain’s thriving private equity industry.
Higher capital gains and inheritance taxes are also expected. These would affect regular middle-income households. The Chancellor is also considering reducing some tax breaks for pension savings.
Attacks on the wealthy, who have amassed capital due to recent increases in asset values (property, stocks, and shares), will appeal to Labour’s socialist base.
But how will such policies promote growth?
Starmer and Reeves claim they want to boost investment in Britain’s brilliant AI, technology, gaming, and health sciences businesses while revitalizing the London stock market.
However, taxes on the wealthiest members of society will merely push capital away, making it much more difficult for the new government to unlock the private sector money it seeks for its green revolution — not to mention the new National Wealth Fund, which has been formed to finance innovation and pioneering technology.
One light of hope could come from Reeves’ former job, the independent Bank of England.
Doubt
Today, the Monetary Policy Committee, led by Governor Andrew Bailey, begins a meeting that could result in interest rates falling from 5.25 percent now that inflation has been controlled.
A rate drop would benefit struggling firms, help homeowners with mortgages, and lower the cost of paying Britain’s national debt. It would significantly boost Britain’s output.
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However, Reeves has sown distrust across the City. Her inflation-busting compensation deal for public-sector employees has raised concerns that other groups of workers would demand more.
A cautious Bank of England, concerned about a ‘wage spiral,’ may back down from a precarious choice. Prolonging a period of increased borrowing prices would, among other things, jeopardize the government’s ambitious housing construction plans.
Reeves has forgotten that the fastest and best method to deal with borrowing overshoots is to expand the economy, which raises revenue for the Exchequer while decreasing welfare payouts.
The Chancellor’s inflexible and dishonest rhetoric undermines the entire growth objective on which the new administration was elected.
She risks smashing the foundations into rubble rather than mending them.
