Is Rachel Reeves boxed in? “All she's left with is big borrowing”
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Will Rachel Reeves’s economic plans really be able to grow the economy ?
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In brief…
- Rachel Reeves is set to unveil her economic agenda in the October budget in the coming weeks.
- The Chancellor is expected to tweak borrowing rules to drive investment after ruling out certain tax cuts.
- The News Agents say it won’t be easy to get everyone on side, but she has left herself with little options.
What’s the story?
On 30 October, Rachel Reeves will walk in (and out) of 10 Downing Street for the first time with the infamous red box as she delivers her first budget as the Labour Party's Chancellor of the Exchequer.
Already, Reeves and Prime Minister Keir Starmer have spoken frequently about the £22 billion deficit left by the previous Conservative government, and announced controversial plans to axe winter fuel payments for pensioners as its first step to fill this "black hole".
Now, new reports suggest Reeves may relax government borrowing rules in the budget in an effort to raise the funds needed. Emily explains: “The Institute for Public Policy Research (IPPR), a Labour-friendly Think Tank, has come out today and said that changing the fiscal rules could actually unlock more than 50 billion pounds for investment”.
But Reeves will have to walk a “tightrope” in finding a way to fund the government's plans without borrowing so much that it scares investors.
The UK’s borrowing costs have been rising, so much so that the difference between what the UK and Germany pay to borrow money is the biggest it's been in over a year.
“Every 10th of a percentage point increase in borrowing costs for the government makes Reeves’ room for maneuver to borrow, to fund the things she wants to do, that much harder” explains Lewis.
“So there is some worry and trepidation about it within Downing Street”.
Why is Reeves considering changing the fiscal rules?
This move is undoubtedly a result of Reeves being “boxed in” at the moment, as Lewis says.
The Chancellor has ruled out certain tax rises, namely income tax, value added tax and national insurance, and is unable to raise as much money as she’d hoped through other means.
“The main revenue raises they suggested, whether it's on private schools or changes in pension provision or non-doms - it's very clear that the initial fiscal projection suggests they will either raise less money than they thought, or, in some cases, no money whatsoever.”
“I was told that Treasury ministers and officials are scrambling around trying to find even quite small changes that might raise some money”.
Emily agrees that for someone who “literally staked her career on promising us growth,” Reeves hasn’t left herself many options.
“She doesn't want to be the labor Chancellor that has scared off the people who are going to help this economy grow.
“All she's left with is big borrowing.”
The News Agents take
Lewis says the October budget marks the “the first big opportunity for Rachel Reeves, beyond the winter fuel payment, to actually say what ‘is this government about?”.
According to Emily, it could be an opportunity for Reeves to come up with something “radical” and “eye catching”.
She says: “What I'm hearing from people who've been part of the Downing Street machine is that actually [with the missteps over the summer]… there is more pressure on Reeves now to be radical, to come up with something that is properly eye-catching”.
The source told Emily that the only option now is to come up with a “hefty investment plan”.
But it won’t be easy.
Emily adds: “She has to get the back benchers back on side after what they're calling the idiotic winter fuel move. [They] think it was cack-handed and they've got to start the reset.”
Backbenchers aren’t the only ones Reeves needs to get on her side either.
Jon says: “She also has to please the OBR (Office for Budget Responsibility) that these figures add up, and the IFS (Institute for Fiscal Studies) that this is sane and proper accounting, not just some sort of Mickey Mouse scheme to find money down the sofa.”
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