Can Rachel Reeves inject some optimism into the debate around Britain’s economy? That seems to be her ambition today, as she prepares to address Labour conference – and the country – this afternoon, where she will look forward to a ‘decade of national renewal’ and promise ‘no return to austerity.’
The change in language is striking. Having used this summer to prepare people for a ‘painful’ and ‘difficult’ Budget in October that will have to include tax hikes and spending cuts, Reeves is now talking about the fiscal event as ‘a Budget to rebuild Britain’, and pointing to a much more positive future: a economic ‘prize’ of a more stable economic foundation, ‘if we make the right choices now.’
But two questions remain: has this pivot come too late, and will the Budget announcements be compatible with this more optimistic tone?
There is already concern that this summer’s doom-and-gloom language has done damage to investment prospects in the UK, as Britain has been described by its governing party as a country with an economy close to the brink – a place where £1.5 billion worth of public spending payments on the winter fuel allowance had to be cut to avoid a run on the pound.
Last week’s consumer confidence survey from the market research company GfK may have been part of the wake-up call, as ministers start to clock the extent to which the negative commentary has affected consumers. The latest survey found confidence had fallen to the lowest levels since March this year, cancelling out the gains made in the past six months as inflation slowed further, economic growth picked up in the spring and wages continued to rise faster than prices.
In other words, the (relatively) good economy Labour managed to inherit this summer has been talked down to the point that the party may not just fail to benefit from it: it may actually risk damaging future economic prospects. This was always a risky trade-off: in an attempt to make the next, most politically difficult, Budget an extension of the Tory party’s legacy – which Reeves is attempting to do by suggesting there is a £22 billion fiscal black hole she needs to fill – the upwards revisions to UK economic growth and the return to inflation were at risk of getting overlooked by what’s to come.
And what, exactly, is to come? We don’t get those details in Reeves’s speech today, who is keeping the details of the Budget on lockdown ahead of the event. Speaking to Nick Robinson on the BBC’s Today programme this morning, she said Labour is ‘not going to be bringing in a wealth tax’ – a promise they had made verbally in the past but was not ruled out in the manifesto. But there were no details forthcoming about how to find the cash to fill the supposed £22 billion black hole – roughly half of which is accounted for by Labour’s first big spending decision, to grant inflation-busting public sector pay hikes (money which will now need to be found every year).
Reeves may benefit from some revisions to the Office for Budget Responsibility’s revised forecasts, which with better growth figures should give her a bit more fiscal headroom. But between the spending promises that have already been made, the promises that have been implied (that with NHS reform, for example, comes more cash) and promises made just this morning – ‘there’ll be real terms increases to government spending in this Parliament’, Reeves told the BBC – there remain plenty of questions as to the changes that will be included in the Budget.
It’s this last point that Reeves wants to land this week, as talk of the return of austerity continues to bubble up around Labour conference. Asking about reversing the cap on social care costs, as well as the changes to winter fuel allowance, Robinson asked the Chancellor, ‘if that’s not austerity, what is?’ Reeves delayed her answer, saying the details would come in two waves: in the October Budget for next year’s spending settlement, and then in the Spending Review next Spring, for the next few years to come.
But austerity is not just spending cuts: it’s tax rises, too. It’s something she’ll have to confront much sooner than next spring.
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