logo
Rachel Reeves must take back control of the growth agenda

Rachel Reeves must take back control of the growth agenda

Independent03-06-2025
Chancellor Rachel Reeves does not present as one of life's gamblers. Her proudest boast, curriculum vitae aside, is her 'iron' determination to put Britain's public finances on a sustainable footing.
Yet, as the latest report from the OECD shows, that objective has been far from fulfilled – and will become even more difficult to achieve, at least over the coming year or so.
The organisation's downgraded UK growth forecasts – 1.3 per cent this year, and 1 per cent for 2026 – are miserable, and will do nothing to lift confidence among consumers and investors, nor banish the dismal mood in her party about its electoral prospects. For most people, there is no practical difference between living in an economy with such minimal expansion and one that is stagnant or in a mild recession.
Ms Reeves's problem is that, fiscally speaking, she likes to live dangerously – or, at least, that is how things have turned out. She has never provided herself with sufficient leeway in meeting her self-imposed fiscal rules to withstand the kind of bad luck or more serious shocks to the economy that might come any chancellor's way.
Such unfortunate developments have been all too frequent in her time in office, and that has led to a sort of perma-crisis over tax, spending and borrowing, with politically sensitive cuts to benefits adding to the sense of jeopardy.
Time and again, Reeves has created the thinnest of margins of error – about £10bn, in a spending total of around £1,300bn – and, time and again, it has been wiped out. Sometimes, that has been because of the usual vicissitudes, such as inflation proving more stubborn than usual, and elsewhere because of unpredictable events, most obviously Donald Trump's gyrating attitude to tariffs.
But she has made her own mistakes, too. Cutting the pensioners' winter fuel payment yielded minimal additional revenues for maximum electoral loss, and she placed too much emphasis on raising employers' national insurance contributions, which appears to have had a more depressing effect than thought.
Her biggest gamble, however, has been in hoping that she could meet her fiscal rules by the absurdly small margins she allowed herself. The OECD recommends that the chancellor 'steps up' her efforts to create a more comfortable buffer against adversity, and Ms Reeves would be as well to take their advice.
The comprehensive spending review next week is the best opportunity she will have on that side of the ledger to inspire confidence that she is indeed making the right kinds of tough choices – ones that protect the most vulnerable, as well as boosting growth. At the Budget in the autumn, she will have another chance to 'kitchen-sink' the measures needed to avoid the periodic crises that have unnerved markets and so drained confidence in the government.
The OECD suggests a 'balanced' approach: targeted spending cuts, including the closure of tax loopholes; revenue-raising measures such as re-evaluating council tax bands for the first time since they were introduced in 1991; and the removal of distortions in the tax system.
These reforms to taxation would probably mean a fairer and more rational system, and might thus make the economy a little more healthy. But the main effect must be to chart a medium-term fiscal strategy that markets can have confidence in, which provides room for the Bank of England to ease interest rates, and, at last, puts the government back in control of events, rather than being pushed around by them.
Few governments have foundered as swiftly as the Starmer administration, but that does not mean recovery, both economic and political, is impossible.
Far from it. This early in the parliament, and with such a substantial majority at the government's disposal, Ms Reeves has a chance to put right the mistakes she made in her first months, and move beyond (rightly) chastising the Conservatives for their complacency and banging on about the notorious £22bn 'black hole'. To borrow a phrase popular in government circles, she should have gone further and faster last year to sort the public finances out for the rest of the parliament.
The good news for her and her colleagues is that it is not too late to lay those firm fiscal foundations for growth. But this year, she should play safe, take more notice of the raw politics of her choices, and develop a more compelling narrative about the future rewards for prudence. It will be painful, but not as uncomfortable as watching another wager fail. She will indeed need an iron determination.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

UK should recognise state of Palestine while there is still a state to recognise, MPs tell Starmer
UK should recognise state of Palestine while there is still a state to recognise, MPs tell Starmer

The Independent

timean hour ago

  • The Independent

UK should recognise state of Palestine while there is still a state to recognise, MPs tell Starmer

The UK should recognise the state of Palestine while there is still a Palestine left, a powerful Commons committee has told Keir Starmer. The foreign affairs select committee said the UK's actions over the ongoing conflict and "in the years preceding, have often been too little, too late," as they called for further sanctions "against settlers". It comes as Keir Starmer has issued his strongest condemnation yet of Israel's starvation of Gaza and hinted he is edging closer to recognising a Palestinian state, In a new report the committee said Israel must open all crossing points to food, medical, materials for shelter and other aid to Gaza. It also calls on the UK to act 'more boldly and bravely', including sanctions on all businesses operating in Israeli settlements in the West Bank. The report also warns that, despite being an ally, Israel is not listening to the UK and says pressure should be put on the US to persuade Tel Aviv. However, the recommendation of recognising a Palestinian state pushed through by the committee's majority of Labour majority threatens to reopen deep divisions in the party again. Labour Friends of Israel, which has powerful supporters in the cabinet including chancellor Rachel Reeves and chancellor of the Duchy of Lancaster Pat McFadden, has warned that recognising Palestine now is the wrong thing to do. But Labour's main financial backers the trade unions have repeated their demands for immediate recognition of a Palestinian state. Dame Emily Thornberry, a long term critic of Israel and the Labour chair of the Commons' foreign affairs committee, said immediately recognising the state of Palestine would signal the UK's desire to work urgently towards a two-state solution. On Thursday, business secretary Jonathan Reynolds said Labour was "deeply committed" to recognising a Palestinian state, a pledge in the party's last general election manifesto, but he said such a move would have to be meaningful and come as part of a "genuine move towards a two-state solution and a long-term peace settlement" with Israel. Dame Emily also said Labour "must not shrug our shoulders in despair and say that there is nothing we can do". She called on ministers to "immediately' extend sanctions against settlers and for the UK to play a part in evidence collection 'which will be vital to the inevitable legal reckoning when this conflict finally comes to an end". She said that the UK "must be realistic about our role" and "our greatest power is in our alliances". "Whether that is persuading the US to have an influence on Israel to come to a ceasefire, or with nations in the region whose support will be vital to a long-term two-state solution." Mayor of London Sir Sadiq Khan is among the senior Labour figures who have recently called for Palestine to be recognised. MPs on the committee were divided over the call, but a majority backed it. In a sign that divisions on the issue continue to plague te Labour Party, Paul Nowak, general secretary of the Trades Union Congress (TUC), repeated the demands from the party's biggest financial backers for the immediate recognition of a Palestinian state. He said: ''Words must be matched with action. That's why we are calling for the UK and its international partners to use every diplomatic, political, and economic tool available to help deliver an immediate and permanent ceasefire, end the illegal occupation and start a meaningful political peace process that respects the right to self-determination. 'This must include formal recognition of the State of Palestine. Not in a year's time or two years' time - but now.' However, Labour Friends of Israel chair Jon Pearce MP warned: "Recognition is a card that can only be played once. It must be done when it will have maximum impact. 'As we saw when Ireland, Spain and Norway recognised a Palestinian state outside of any process, recognition changes nothing on the ground but does risk tearing up the Oslo Accords without a plan for security and sovereignty to replace it, whilst at the same time being seen as a reward for terrorism, inadvertently emboldening Hamas in the ceasefire negotiations."

UK consumer confidence weakens amid tax rise speculation
UK consumer confidence weakens amid tax rise speculation

Times

timean hour ago

  • Times

UK consumer confidence weakens amid tax rise speculation

Confidence among British consumers weakened this month, as speculation grew that Rachel Reeves may announce further tax rises in the autumn budget, a closely watched survey has found. GfK's long-running consumer confidence index — a measure of how people view their personal finances and broader economic outlook — dipped by one point in July. The fall erased gains made over the previous two months and left the index standing at -19, which is below the long-run average of -10. The savings index, which measures whether consumers feel it is a good time to save based on the economic environment, jumped seven points to 34. GfK said that this was the highest level since November 2007, around the time of the financial crisis, suggesting broader anxiety among people about the direction of the economy. Neil Bellamy, consumer insights director at GfK, noted that while the savings index did not feed into the overall confidence score, it revealed that people 'are building contingency funds'. The survey found no change in expectations for personal finances over the next 12 months, with the sub-index holding steady at 2. Responses were gathered between July 1 and July 15, just before the Office for National Statistics reported that inflation had unexpectedly risen to 3.6 per cent in June, the highest rate recorded since January last year. Sentiment about the country's general economic situation over the past year has significantly worsened since last July. The GfK said the measure now stood at -44 — down from -32 a year ago — reflecting the period since the Labour government took office and pledged not to 'increase taxes on working people'. Bellamy warned that people 'may be sensing stormy conditions ahead', as other key indicators in the survey suggested growing public uncertainty about whether the government could hold to its promise. He said: 'The key measures on personal finances, the economy and purchase intentions are flat in July and many will conclude that consumers are in a cautious wait-and-see mood. 'With speculation growing over possible tax rises in the autumn budget and price pressure contributing not just to higher inflation already but also to the likelihood of worse inflation to come, the news is worrying.' Expectations for the UK economy over the next 12 months also remained firmly in negative territory. That measure stood at -29, some 18 points lower than last July. 'It's difficult to see what will lift it [the overall index] meaningfully higher in the months to come. It has drifted quietly downwards over the past year and any fresh challenges or shocks could easily push confidence sharply lower,' Bellamy said. Official figures released this month revealed that the UK economy contracted by 0.1 per cent in May. Reeves called the performance 'disappointing' as it marked the second consecutive monthly decline. However, the chancellor said she was 'determined to kick-start economic growth' and get more money into people's pockets. Despite the overall downbeat outlook, the GfK survey, which started in the 1970s, found consumers were slightly more willing to spend on big-ticket items such as furniture or electrical goods. The big purchase index edged up one point from last month to -15.

UK consumers save more as they brace for tougher times, GfK says
UK consumers save more as they brace for tougher times, GfK says

Reuters

timean hour ago

  • Reuters

UK consumers save more as they brace for tougher times, GfK says

LONDON, July 25 (Reuters) - British consumers remained in a cautious mood this month ahead of possible tax increases later this year and added to their savings, according to a survey published on Friday. The consumer confidence index from market research firm GfK dipped to -19 in July from a six-month high of -18 in June. Economists polled by Reuters had mostly expected a reading of -20. "The data suggests that some people may be sensing stormy conditions ahead," Neil Bellamy, consumer insights director at GfK, said. "With speculation growing over possible tax rises in the Autumn budget, and price pressure contributing not just to higher inflation already but also to the likelihood of worse inflation to come, the news is worrying." Finance minister Rachel Reeves is expected to raise taxes for a second year in a row in her next annual budget plan after Prime Minister Keir Starmer was forced into u-turns on plans to save billions of pounds on welfare spending. GfK's savings index, which is not part of its headline confidence gauge, jumped seven points to +34, its highest level since November 2007, shortly before the global financial crisis deepened. Official retail sales data for June, due at 0600 GMT, are expected to show a rise in sales volumes after a sharp fall in May, according to the economists polled by Reuters.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store