Chancellorship of Rachel Reeves explained

Chancellorship of Rachel Reeves
Term Start:5 July 2024
Chancellor:Rachel Reeves
Chancellor Link:Chancellor of the Exchequer
Party:Labour
Election:2024
Appointer:Charles III
Nominator:Sir Keir Starmer
Seat:11 Downing Street
Predecessor:Jeremy Hunt
Seal:Coat of arms of the United Kingdom (2022, lesser arms).svg

Rachel Reeves became Chancellor of the Exchequer on 5 July 2024, upon her appointment by Prime Minister Keir Starmer, following Labour's victory in the 2024 general election. She succeeded Conservative chancellor Jeremy Hunt, and became the first woman to hold the office of Chancellor in its 708-year history.[1]

In this role she has adhered to "modern supply-side economics", an economic policy that focuses on infrastructure, education and labour supply by rejecting tax cuts and deregulation. It is heavily inspired by Joe Biden's economic policy, particularly his Inflation Reduction Act. She coined the term securonomics in 2023 to refer to her version of this economic policy.

Background

See main article: 2024 United Kingdom general election. Rachel Reeves was appointed Shadow Chancellor in May 2021, following a shadow cabinet reshuffle.[2] Over her three years in office, Reeves proposed to scrap tuition fees, no re-introduction in a cap on bankers' bonuses, and a plan to nationalise the railways.[3] [4]

Securonomics

Since 2022, Reeves has adhered to "modern supply-side economics", an economic policy which focuses on infrastructure, education and labour supply by rejecting tax cuts and deregulation.[5] [6] In May 2023, Reeves coined the term "securonomics" to refer to her version of this economic policy, originally in a public address at the Peterson Institute for International Economics.[7] [8] It is heavily inspired by US president Joe Biden's economic policy, particularly his Inflation Reduction Act.[9] [10]

Securonomics is based on the belief that globalisation has failed to achieve its stated aims and that economies in the Western world must adapt in response.[11] It would involve a productivist "active state" taking a more active role in managing the free-market economy, boosting production and drawing up industrial policy, stronger supply chains, and more economic cooperation with international allies with similar economic goals. Reeves believes that the active state is part of an "emerging global consensus" led by Biden's administration which will replace the neoliberal economic consensus, and that economic policy must be driven by the need for security.[12]

In an interview with the Financial Times in May 2023, Reeves said securonomics had to be based on "the rock of fiscal responsibility". She said her proposed £28 billion climate investment plan, Labour's version of the Inflation Reduction Act, had to "fit within her fiscal rules". In June 2023, the investment plan was revised to a gradual roll-out where the annual investment would rise gradually to £28 billion by around 2027.[13] [14] She argued that following the economic impact of the 2021–2023 global energy crisis, food price crisis and the Truss government's "mini-budget", the plan "will only be possible if we have an iron grip on public spending and tax receipts". The New Statesman reported that in an interview Reeves said "a Labour government would not introduce annual wealth and land taxes; raise income tax; equalise capital gains rates and income tax; rejoin the European single market and customs union; change the Bank of England's inflation target and reform its rigid mandate; or take private utilities into public ownership, except for the railways".

Tenure

Reeves was appointed Chancellor of the Exchequer by Prime Minister Keir Starmer on 5 July. She became the first woman to hold the office of Chancellor in its 708-year history.[1] On taking office Reeves has said that since there is "not a huge amount of money" the focus will be on unlocking private-sector investment, as she believes "private-sector investment is the lifeblood of a successful economy."[15] [16] She made her first statement as Chancellor two days later, announcing measures to grow the economy. Reeves also announced her first budget would be released later in the year in the autumn.[17] [18]

In July 2024, Reeves announced a new £7.3bn National Wealth Fund to decarbonise Britain's heavy industry, which would be disbursed by the UK Infrastructure Bank over five years.[19]

2024 Spending Review

On 29 July 2024, Reeves conducted a spending review, arguing there was a need to make "necessary and urgent decisions" because of an "unfunded" and "undisclosed" overspending of £21.9bn by the previous Conservative government. Among the decisions she made were to axe winter fuel payments for pensioners not receiving pension credit (roughly around 10 million people), announcing the cancellation of several infrastructure projects, and selling surplus public sector buildings and land.[20] Shadow Chancellor Jeremy Hunt dismissed her claims as "spurious", and argued that details of all government spending had been released by the Office for Budget Responsibility.[21] [22] During a subsequent appearance on Sky News, Reeves accused Hunt of "knowingly and deliberately" lying about the state of public services during the election campaign. In response, Hunt wrote to Cabinet secretary Simon Case, who heads the civil service, to dispute Labour's claims and request an "immediate answer" to "conflicting claims" that risk "bringing the civil service into disrepute".[23]

In a bid to halt strike action, the government offered junior doctors in England a two-year pay deal worth 22% on average.[20] Reeves scrapped the previous government's plan to sell shares to the general public in NatWest Group, but stated that the government still intended to fully dispose of its shareholding by 2025–26.[24] [25]

Alleged contravention of the ministerial code

The speaker of the House of Commons, Lindsay Hoyle, reprimanded Reeves in the Commons on 28 October 2024, saying he was "very, very disappointed" and found it totally unacceptable that she had given information to journalists in the US about the upcoming Budget, in contravention of the ministerial code. The code expects major government announcements to be made in the Commons before to the news media. Hoyle said the early revelations were a "supreme discourtesy to the House".[26] [27]

October 2024 budget

See main article: October 2024 United Kingdom budget. The October 2024 United Kingdom budget was presented to the House of Commons by Reeves on 30 October 2024. In the budget, she announced tax rises worth £40 billion, the biggest tax rise at a budget since 1993.[28] Amongst the measures she announced were an increase in employers' National Insurance to 15% on salaries above £5,000 from April 2025,[29] income tax thresholds to rise in-line with inflation after 2028, changes to farm inheritance tax meaning that the inheritance tax of 20% would effectively apply to rural estates above the value of £1,000,000 from April 2026,[30] and a rise in the single bus fare cap to £3 from January 2025.[31] The OBR forecast that the budget would mean the tax burden would be set to its highest ever level in recorded history.[32] [33] [34] [35] The director of the Institute for Fiscal Studies, Paul Johnson, accused Reeves of further undermining trust in politicians.[36] Reeves later said that it was not a budget she would want to repeat,[37] and accepted that the tax rises would likely hit wage growth for workers.[38]

The main budget points presented were:

Rishi Sunak accused the government of deceit and breaking earlier fiscal pledges. He disputed Reeves' description of a "black hole" in the budget, stating that Labour had always planned to raise taxes, and condemned the previous Labour government's record.[50] [51] Ed Davey described the government’s plans on social care as “a good start” but inadequate. He also said that he thought that the budget may not offer British people "a sense of hope, urgency and the promise of a fair deal" and that more could have been done to help the more vulnerable people in society.[52] [53]

In a letter to Reeves, published on 19 November, a group of the UK's high street retailers, including Tesco and Greggs, warned the "cumulative burden" of tax rises announced in the budget, along with other policies already in the pipeline, would add billions in costs to the retail sector and put jobs at risk.[54] Also on 19 November, several thousand people attended a protest in London over inheritance tax increases for farmers.[55]

Notes and References

  1. Web site: 2024-07-05 . Reeves becomes first female chancellor and Rayner deputy PM in Starmer's new top team . 2024-07-05 . The Independent . en.
  2. News: Reeves rises while Dodds drops in Labour reshuffle. Evening Standard. Doherty. Caitlin. 9 May 2021. 5 July 2024.
  3. News: Labour principles have not changed, says Reeves after tuition fees U-turn . Express & Star . Wolverhampton . 3 May 2023 . 5 July 2024.
  4. News: Cowley . Jason . 7 June 2023 . The Reeves doctrine: Labour's plan for power . New Statesman . 5 July 2024.
  5. Web site: Wearmouth . Rachel . 25 July 2022 . Why Keir Starmer has borrowed the Tories' "magic money tree" attack line . 10 June 2023 . New Statesman.
  6. Web site: Reeves . Rachel . 7 July 2022 . The Tories have left our economy in a mess. This is how Labour would fix 12 years of damage . 10 June 2023 . inews.co.uk.
  7. News: Cowley . Jason . 7 June 2023 . The Reeves doctrine: Labour's plan for power . 9 June 2023 . New Statesman.
  8. Web site: 24 May 2023 . Labour brands economic policy 'securonomics' with focus on active state . 10 June 2023 . The Independent.
  9. News: 24 May 2023 . Rachel Reeves unveils Labour's Joe Biden-inspired economic strategy . 10 June 2023 . BBC News.
  10. Web site: Cree . Richard . 25 May 2023 . Labour launches economic plan built on a UK-version of 'Bidenomics' . 10 June 2023 . The Institute of Export and International Trade.
  11. Web site: Self . Josh . 30 May 2023 . Keir Starmer's American dream . 10 June 2023 . Politics.co.uk.
  12. News: Parker . George . 23 May 2023 . Rachel Reeves embraces 'Bidenomics' as blueprint for a Labour government . 10 June 2023 . Financial Times.
  13. News: Morton . Becky . 9 June 2023 . Rachel Reeves waters down Labour £28bn green investment pledge . 9 June 2023 . BBC News.
  14. Web site: 9 June 2023 . 'The fiscally responsible choice': Labour clarifies plan to deliver £28bn in annual green investment by 2027 . 10 June 2023 . www.businessgreen.com.
  15. Web site: Reeves: 'There's not a huge amount of money' . 5 July 2024 . BBC News.
  16. Web site: 2024-07-05 . Chancellor Rachel Reeves statement to HM Treasury – 5 July 2024 . 2024-07-08 . GOV.UK . en.
  17. Web site: UK politics live: Rachel Reeves to announce housebuilding targets in first speech as chancellor . 2024-07-08 . BBC News . en-GB.
  18. Web site: updated . Ruth Emery last . 2024-07-05 . When will Labour's first Budget happen? . 2024-07-08 . moneyweekuk . en.
  19. Web site: New £7bn National Wealth Fund to start green investment 'immediately' . . 30 July 2024.
  20. Web site: Rachel Reeves's spending audit at-a-glance . . 30 July 2024.
  21. News: Mitchell . Labiak . Faisal . Islam . Winter fuel payments scrapped for millions of pensioners . 29 July 2024 . BBC News . 29 July 2024 .
  22. News: Rachel Reeves's spending audit at-a-glance . 29 July 2024 . BBC News . 29 July 2024 .
  23. Web site: Hunt 'knowingly and deliberately' lied about finances, says Reeves . Eleni . Courea . 30 July 2024 . 30 July 2024 . The Guardian.
  24. Web site: NatWest 'Tell Sid' retail share sale plans scrapped by chancellor . . 30 July 2024.
  25. Web site: UK's Reeves scraps plan for Natwest public share sale as too costly . . 30 July 2024.
  26. News: Rogers . Alexandra . 28 October 2024 . 'Get your acts together': Speaker attacks Rachel Reeves for failing to inform MPs of key budget announcement . Sky News.
  27. News: McKiernan . Jennifer . 28 October 2024 . Speaker rebukes Reeves for Budget comments in US . BBC News.
  28. Web site: Budget 2024: Biggest tax rise since 1993 – with employers to bear the brunt . 2024-10-31 . Sky News . en.
  29. News: Burton . Lucy . Boland . Hannah . Field . Matthew . 2024-10-31 . Employers warn of crisis as Reeves increases NI contributions . 2024-10-31 . The Telegraph . en-GB . 0307-1235.
  30. News: Horton . Helena . reporter . Helena Horton Environment . 2024-10-31 . Why UK farmers may be left worse off by the budget . 2024-10-31 . The Guardian . en-GB . 0261-3077.
  31. Web site: 2024-10-28 . Single bus fares to rise to £3 from £2 in England under new cap . 2024-10-31 . BBC News . en-GB.
  32. Web site: Hazell . Will . 2024-10-30 . Tax burden set to rise to highest level ever after Budget – here's why . 2024-10-31 . inews.co.uk . en.
  33. Web site: 2024-10-30 . Newspaper headlines: 'Reeves' £40bn tax gamble' and 'bombshell for Britain's strivers' . 2024-10-31 . BBC News . en-GB.
  34. Web site: Reeves promised to be the iron chancellor – but her first budget brings dramatic change . 2024-10-31 . Sky News . en.
  35. Web site: 2024-10-30 . Historical benchmarks and milestones in Rachel Reeves' first Budget . 2024-10-31 . The Herald . en.
  36. News: Mitchell . Archie . Maddox . David . Cooke . Millie . 1 November 2024 . Reeves admits tax hikes will hit working people as IFS accuses chancellor of 'undermining trust' . Independent.
  37. Web site: 2024-10-30 . This is not a Budget we want to repeat, says Rachel Reeves . 2024-10-31 . BBC News . en-GB.
  38. Web site: Reeves accepts tax-raising Budget likely to hit wage growth for workers . 2024-10-31 . BBC News . en-GB.
  39. Web site: Cecil . Nicholas . 2024-10-30 . Budget 2024: Key points announced in Chancellor Rachel Reeves' autumn statement . 2024-10-30 . The Standard . en.
  40. News: Jolly . Jasper . Walker . Peter . 2024-10-30 . Budget 2024: key points at a glance . 2024-11-01 . The Guardian . en-GB . 0261-3077.
  41. Web site: Barry . Sion . Lynch . David . 30 October 2024 . Minimum wage to rise 6.7% as Chancellor plots path to 'genuine living wage' . Business Live.
  42. Web site: Bruce . Andy . October 29, 2024 . UK raises minimum wage by 6.7% in boost for workers, despite employer unease . October 30, 2024 . Reuters.
  43. Web site: McKeon . Christopher . 2024-10-29 . Minimum wage to rise 6.7% as Chancellor plots path to 'genuine living wage' . 2024-10-30 . The Standard . en.
  44. Web site: Skills England to transform opportunities and drive growth . GOV.UK.
  45. Web site: Government announces £600,000 of new compensation for every wrongfully convicted Postmaster . GOV.UK.
  46. Web site: Reichman . Carmen . 2024-10-30 . NIC increase will not raise 'anything like the £25bn stated', warns IFS . 2024-11-01 . . en.
  47. News: 2024-10-30 . UK Chancellor Rachel Reeves raises employers' National Insurance Contributions . 2024-11-01 . Reuters.
  48. Web site: 2024-10-31 . What does the Air Passenger Duty increase mean for cheap flights? . 2024-11-01 . The Independent . en.
  49. Web site: Vickers . Noah . 2024-10-31 . New Bakerloo line trains can be 'explored' thanks to Budget, says Sadiq Khan . 2024-11-01 . The Standard . en.
  50. Web site: Budget: Rishi Sunak claims Rachel Reeves 'fiddled the figures' for her Budget . Sky News.
  51. Web site: 30 October 2024 . Sunak accuses chancellor of 'fiddling the fiscal rules' | Budget 2024 . YouTube.
  52. News: Budget 2024 live: Rachel Reeves raises taxes by £40bn, with businesses paying more than half . BBC News.
  53. Web site: Harding . LaToya . 30 October 2024 . Reeves announces £40bn tax hike in UK budget . 1 November 2024 . Yahoo Finance.
  54. Web site: Labiak . Mitchell . 19 November 2024 . Warning retail job cuts 'inevitable' after NI tax rise in Budget . 19 November 2024 . BBC News . BBC.
  55. Web site: Kumah . Jenny . Prior . Malcolm . Comerford . Ruth . Binley . Alex . 19 November 2024 . Farmers march in inheritance tax protest in London . live . https://web.archive.org/web/20241119083321/https://www.bbc.co.uk/news/articles/czj71zyy934o . 19 November 2024 . 19 November 2024 . BBC News . BBC.

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