Framing spending cuts as necessary due to a £22 billion "black hole" in public spending left by the previous government, the Chancellor today set the stage for what Labour is messaging will be a "painful" but necessary first budget to "fix the rot" left by the Tories.
With the UK Budget looming on October 30th, Reeves sought to differentiate Labour's approach from both Conservative austerity and the party's own left-wing past, presenting a nuanced strategy that aims to foster economic growth without resorting to broad tax increases.
Reeves, addressing party members and the nation, emphatically declared, "There will be no return to austerity." This statement, however, came with a caveat as she acknowledged the need for "tough decisions" to address what she termed the "Tory legacy".
The Chancellor's speech reflected Labour's attempt to strike a delicate balance between fiscal prudence and fulfilling campaign promises, all while navigating the complex economic landscape left by years of Conservative governance.
Central to Reeves' fiscal strategy is a multi-department spending review aimed at saving £5.5 billion. This approach signals a departure from the across-the-board cuts characteristic of 2010s austerity, instead focusing on targeted reductions. Critics within Labour have accused Reeves of "reheating 2010 austerity tactics," but the party insists its method is fundamentally different, emphasizing selective cuts rather than sweeping reductions.
Labour has already announced cuts to winter fuel payments for pensioners. Reeves defended this decision, framing it as a necessary step to target support to those most in need. "I will not duck those decisions for political expediency," she stated, underscoring her commitment to making difficult choices in the name of fiscal responsibility.
Despite these cuts, Reeves highlighted several measures of increased public expenditure, including an over £9 billion public sector pay rise in real terms and promised increases in NHS and school spending. To fund these initiatives, Labour plans to leverage policies targeting non-domiciled individuals and private schools, demonstrating a targeted approach to revenue generation.
In a significant shift from previous Labour positions, Reeves categorically ruled out several tax measures that had been floated in the past. She confirmed that Labour would not introduce a wealth tax, implement a mansion tax on expensive properties, increase capital gains tax, or raise the top rate of income tax. This marks a notable departure from Keir Starmer's previous pledge to increase the 45p top rate, which has now been abandoned.
Reeves pledged to cap corporation tax at its current level for the duration of the next parliament. She also promised that Labour would not increase basic, higher, or additional rates of income tax, National Insurance, or VAT.
Reeves emphasized her vision for economic growth, stating, "I don't see the way to prosperity as being through taxation." This sentiment reflects Labour's strategic pivot towards wooing the business sector and blunting potential Conservative attacks on the party's economic competence. "We have no plans to increase taxes outside of what we've said," Reeves affirmed, seeking to reassure both the electorate and the financial markets.
However, Labour remains committed to some previously announced tax changes. These include scrapping non-dom tax status, closing a tax loophole for private equity fund managers, adding VAT to private school fees, and intensifying efforts to combat tax avoidance. Reeves defended the plan to impose VAT on private school fees as "the fair choice" to support state schools, indicating that while broad tax increases are off the table, targeted measures are still in play.
The Chancellor also revealed plans to extend the energy profits levy on oil and gas producers, with the aim of investing in homegrown energy solutions. This aligns with Labour's broader vision of state-led projects, including the creation of a publicly-owned Great British Energy company and the re-nationalization of railways, marking a clear ideological distinction from the Conservative "small state" approach.
Reeves' speech wasn't all about fiscal tightening, however. She announced a £7 million pilot scheme to introduce breakfast clubs in 750 primary schools across England this summer term. If successful, Labour plans to expand this initiative to all state primary schools in England for pupils aged 4 to 11. Reeves framed this as an "investment in our young people, an investment in reducing child poverty and investment in our economy," highlighting Labour's commitment to social programs even in a challenging fiscal environment.