Reeves making bigger mistakes than Truss, says Badenoch

Telegraph

a day ago

Sir Keir Starmer and Rachel Reeves are making 'even bigger mistakes' than Liz Truss and have not learnt the lessons of her mini-budget, Kemi Badenoch has warned.
Writing in The Telegraph, the Tory leader accuses the Government of taking Britain's finances 'to the brink' over concerns that it is pushing the country into a 'debt spiral'.
Comparing Labour to Ms Truss marks Mrs Badenoch 's first major public criticism of the former Conservative prime minister, whose tax-cutting 2022 mini-budget was followed by a market meltdown.
Mrs Badenoch says: 'For all their mocking of Liz Truss, Keir Starmer and Rachel Reeves have not learnt the lessons of the mini-budget and are making even bigger mistakes.
'They continue to borrow more and more, unable and unwilling to make the spending cuts needed to balance the books.'
Her comments are a bid to blunt Labour's continued efforts to pin Britain's current economic woes on the Tory legacy of Ms Truss's premiership.
Almost three years on, Ms Reeves and Sir Keir still regularly resort to blaming the mini-budget for unpopular decisions on tax and spending.
But the remarks also risk reopening old wounds within the Tories, with some allies of Ms Truss arguing that she had the right vision for a low-tax economy.
A source close to Liz Truss told The Telegraph: 'Kemi has not learned the lessons of the Mini Budget, which is that when Conservative MPs fail to back tax cuts, fracking and welfare restraint, they get booted out of office.
'The Bank of England has since admitted that two thirds of the market movement in 2022 was down to their failure properly to regulate pensions.
'Kemi needs to do the work and actually look at what happened in 2022 and hold the Bank of England to account.'
The former Tory prime minister has said it was failures by the Bank of England, rather than her tax cuts, which led to the subsequent financial turmoil.
Her supporters have also pointed out that borrowing costs on Government bonds have risen to a higher level now than in the aftermath of the mini-budget.
In her now infamous mini-budget in September 2022, Ms Truss and Kwasi Kwarteng, the chancellor at the time, announced a series of surprise tax cuts, including the abolition of the top 45p income tax rate.
It was not accompanied by a forecast from the Office for Budget Responsibility, nor did it contain any spending restraints to balance the books.
The budget provoked a calamitous market reaction, with the pound hitting an all-time low against the US dollar, government borrowing costs surging and increased mortgage rates.
Ms Truss was swiftly forced to abandon the 45p cut and sack Mr Kwarteng, replacing him with Jeremy Hunt, to try and calm the financial markets. She resigned two weeks later.
Since coming to power last year, Labour has also been criticised for its financial decisions.
Ms Reeves used June's spending review to set out a £300bn spree over the next five years, to be funded by higher taxes and more debt.
She has handed a £190bn increase to public services, paid for by the tax raid on businesses which has been blamed for stalling economic growth.
A further £113bn will be ploughed into infrastructure projects after the Chancellor tore up her fiscal rules to allow herself to borrow more for investment.
Last month's borrowing figure came in at £20.7bn, the second-highest level on record behind June 2020, when the Treasury was funding furlough payments.
As a result, Mrs Badenoch warns that Britain is entering a 'debt spiral'. She says the reversal on £5bn of cuts to sickness benefits has added 'more pressure to the public purse' and has fuelled fears of further growth killing tax rises.
The UK now faces higher borrowing costs than once-bankrupt Greece and is spending more on debt interest repayments every year than the entire defence budget.
Mrs Badenoch writes: 'Keir Starmer and Rachel Reeves have taken profligate spending to a different level. The UK economy is teetering on the brink.
'Bond markets are increasingly jittery about the levels of borrowing today with no balancing spending decreases. This is how countries enter a debt spiral.
'But it is not inevitable, it is a choice. A debt crisis would make everyone in the country a lot poorer and ruin people's lives.
'The Prime Minister must not let pride stop him doing what, I sincerely hope, he knows deep down is essential – cutting government spending.'
Mrs Badenoch's comments also come against the backdrop of internal disagreement over whether the Tory party should continue to apologise for its time in office.
She used her first speech as leader, delivered in December last year, to directly say sorry to voters for the Conservatives' failures on immigration.
One of her closest allies, Baroness Maclean of Redditch, told a meeting in June that the party had 'done the apologies' and should now move on to setting out policies.
But a few weeks later Alex Burghart, the shadow chancellor of the Duchy of Lancaster, told activists that the Tories should keep acknowledging their mistakes.
Sir Mel Stride, the shadow chancellor, had led internal Tory criticism of the mini-budget, vowing last month that the party would 'never, ever' repeat it.
Until now Mrs Badenoch had held her fire, though she did privately tell her shadow cabinet that it would be helpful if Ms Truss made fewer public interventions.
Her warning comes after the International Monetary Fund and senior City figures sounded the alarm about Britain's spiralling debt.
Ray Dalio, a billionaire US hedge fund investor, warned last week that the UK has entered a 'doom loop' of more borrowing, higher taxes and low growth.
Ms Reeves has repeatedly refused to rule out returning with more tax rises in the autumn despite warnings that doing so would further damage the economy.
The Chancellor is under growing pressure from Left-wing backbenchers to introduce a wealth tax, which would probably prompt a fresh exodus of entrepreneurs.
Starmer and Reeves have not learnt the lessons of the mini-budget
By Kemi Badenoch
Picture the scene: a new Prime Minister and Chancellor spending billions without also making the necessary savings to offset their splurge and balance the books. The markets react adversely, interest rates spike and the cost of living gets worse with prices soaring.
For all their mocking of Liz Truss, Keir Starmer and Rachel Reeves have not learnt the lessons of the mini-budget and are making even bigger mistakes. They continue to borrow more and more, unable and unwilling to make the spending cuts needed to balance the books. They are egged on by a Left-wing Reform Party, chasing Labour votes with ever more outlandish promises of nationalisation and welfare giveaways.
The Conservative Party is now under new leadership, and my abiding principle will be that the country must live within its means. Before you dismiss us as being part of the problem, (after all, the mini-budget happened on our watch), the difference is that in 2022 we recognised what had gone wrong and took action to fix it. Labour aren't doing this. In fact they're making a bad situation even worse.
Since the pandemic, Britain has become more and more reliant on debt to pay for public services. We now spend almost twice as much on debt interest than we do on defence. And the deficit is over £70bn.
Keir Starmer and Rachel Reeves have taken profligate spending to a different level. Labour politicians are used to entering office with a surplus built up by cost-cutting Conservatives. Their instincts are simply to spend more, and they were wholly unprepared for the post-Covid economic situation.
We saw it when both Starmer and Farage refused to back my call to keep the two-child benefit cap, a policy that saves £3 billion a year. And we saw it again when the Prime Minister watered down his own Welfare Bill. Instead of making savings, it now actually increases welfare spending – adding more pressure to the public purse.
Before that debate, I made a straightforward offer: Conservative MPs would give him the numbers in Parliament to get the Bill through, if the Prime Minister committed to cutting welfare costs, getting people into work, and ruling out further tax rises this autumn. He refused. So instead, we watched as the Government stripped its own legislation of any serious reform.
The markets were also watching. The UK's borrowing costs are reaching levels not seen for 30 years – higher than even those in Greece. Incredibly, borrowing costs are higher now than after the mini-budget. That means prices rising and the long-running cost of living crisis continuing.
The UK economy is teetering on the brink. There are now warnings, in the City and in Westminster, that a fiscal crisis may even be on the horizon. Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, said this week that Britain had entered a 'doom loop' of rising debts, higher taxes and slower growth. Dalio's warnings came days after the International Monetary Fund said the government must take radical action to avoid a debt spiral.
As we all saw in 2022, the Chancellor and the Prime Minister are reliant on the bond markets. Yet those bond markets are increasingly jittery about the levels of borrowing today with no balancing spending decreases. Rachel Reeves's unfunded series of U-turns have only added to the pressure. She is boxed in by her party on one side, and her fiscal rules on the other.
Everyone now assumes tax rises are coming in the November Budget and the Government isn't denying it. The OBR is warning that higher tax is not good for growth. They are right. The Institute of Directors say that taxes and dire economic outlook is leading to the worst business confidence since the pandemic.
Labour's mismanagement of our economy is having real consequences, and it's working people, savers and business owners who will pay more for declining public services. At the same time, rising welfare and poor incentives are pushing more people out of the workforce, making our problems even harder to fix.
This is how countries enter a debt spiral. But it is not inevitable, it is a choice. A debt crisis would make everyone in the country a lot poorer and ruin people's lives. The Prime Minister must not let pride stop him doing what, I sincerely hope, he knows deep down is essential: cutting government spending. He should do so, for all our sakes.