UK finances on ‘firm footing’ insists chancellor Reeves

We went to the Treasury to interview the Chancellor Rachel Reeves and asked her whether she was was worried about the financial market’s reaction to the Labour government’s first budget.

Cathy Newman: The bond markets have given their verdict on your budget. UK borrowing costs have risen to their highest levels this year. That’s obviously bad news for people with mortgages, but also you because you’re the biggest borrower of them all. Are you a bit worried about that?

Rachel Reeves: Markets will move on any given day. But we have now put our public finances on a firm footing with robust fiscal rules, which the Office of Budget Responsibility confirmed yesterday that we will meet after three years, two years earlier than planned. And the International Monetary Fund yesterday gave our budget a clean bill of health, said that it was the right decisions in terms of the fiscal consolidation that we have built into that budget and the measures we are taking to reduce the deficit.

Cathy Newman: We haven’t mentioned the IFS [Institute for Fiscal Studies]. They’ve given their verdict, they always do the day after a budget. They’ve accused you of playing what they call ‘silly games’ because you’ve pencilled in implausibly low spending increases, as they put it. So 1.3 per cent a year after next, for example. And that implies, doesn’t it, that you’re going to have to come back and ask for yet more tax rises?

Rachel Reeves: Absolutely not. We have now set the envelope of spending for this parliament, and we’re going to live within our means.

Cathy Newman: Right so no more tax rises, you can say that loud and clear?

Rachel Reeves: No chancellor can bind their hands in that way, not knowing what is going to happen in the global economy, for example, over the next five years. But I can say that we have now drawn a line under the fiscal fiction of the previous government. We have wiped the slate clean and we have undone the damage that the previous government have done and that can give confidence to investors in the UK economy that we have taken the action necessary with robust fiscal rules, tough spending plans, a zero-based review to make sure we get value for money for every pound of government money spent. And we did have to make tax rises yesterday, but those tax rises were necessary to get our public finances back on a firm footing.

Cathy Newman: You say that’s it. But I wonder whether people will trust you, because if you look in the election campaign in May, you said, and I quote, ‘There are no additional tax rises needed beyond the ones that I’ve said’. People might think you were dishonest then, you’re being dishonest now.

Rachel Reeves: And there was a £22 billion black hole in the public finances and beyond that, and we published yesterday a line-by-line breakdown of hundreds of unfunded commitments from the previous government. Now, I could have swept that under the carpet and say, well, I’ll deal with that another day. But that would have continued the dishonesty of the previous government. We have now wiped the slate clean.

Cathy Newman: You keep using that £22 billion figure…

Rachel Reeves: That’s what we inherited.

Cathy Newman: It’s heavily disputed. Ultimately, you’ve made a political choice, haven’t you? One of those choices is to raise employers’ national insurance. This morning, you’ve accepted that the bill will be footed by employees, it will be footed by workers…

Rachel Reeves: It will be shared…

Cathy Newman: In part by workers, which you’ve denied for so long.

Rachel Reeves: The alternative was increasing income tax and national insurance directly on working people. The measure that we’ve taken means that at least some of that will be absorbed by employers. And we have the floor of the national living wage, a national minimum wage which people can’t fall below. And we’ve also carved out for the smallest businesses an exemption, which means that you can employ the equivalent of four people at the national living wage.

Cathy Newman: You kept saying to people workers wouldn’t foot the bill and they are. That was a pretence, wasn’t it? That was a fiction.

Rachel Reeves: Cathy, I made a commitment in our manifesto not to increase the key taxes that working people pay. National insurance, income tax and VAT. And we stuck by those commitments even in very difficult fiscal circumstances in the budget yesterday.

Cathy Newman: But where are the choices? Where are the choices? You could have cut the welfare bill, for example. We’ve come back to how it was before Covid.

Rachel Reeves: Cathy, we’ve cut the welfare bill by £4.3 billion by cutting down on fraud and error. That is the biggest ever fraud and error scoring by the Office for Budget Responsibility.

Cathy Newman: But it’s tiny compared to the tax rises. That’s my point, £40 billion tax rise.

Rachel Reeves: It’s £4.3 billion that no other government has ever set out to deliver before. But yesterday we brought stability back to our economy with a tough set of fiscal rules. Some difficult choices on tax, welfare and spending. But our public finances are now on a solid trajectory. We have set out our public spending plans for the rest of this parliament. We’ve put more money into the National Health Service and we’re beginning to rebuild our country.

Cathy Newman: Can you give farmers any hope that you’ll listen to their concerns on inheritance tax, that you might have a rethink on that?

Rachel Reeves: On top of the normal inheritance tax thresholds that you can pass on if you’re a couple of million pounds, including a house, to your descendants. In addition, agricultural property relief will now provide another million pounds of tax free allowance. And then above that, there is a 50 per cent discount on inheritance tax compared to what everyone else pays. Indeed 73 per cent of agricultural property reliefs don’t exceed a million pounds. So small farmers won’t be affected at all by this.

Cathy Newman: But a lot of family farms say they will be affected. Will you listen to their concerns?

Rachel Reeves: We’ve got to raise money. I feel we’ve done that in a fair and balanced way. But 73% of farmers won’t be paying a single penny more in inheritance tax.

Cathy Newman: And the reason for all this tax rise pain is partly because you need to pour more money into the NHS. In return for your largesse, have you had any guarantees from them, for example, about meeting that target you’ve got on reducing waiting times to 18 weeks? Have you got a guarantee from them on that?

Rachel Reeves: First of all, a target which we’ve agreed to the National Health Service of 2 per cent efficiency and productivity improvements this year and next. And in addition to that, a commitment to deliver the 40,000 additional appointments every single week in the NHS. And we will deliver that within the first year of this Labour government and make progress towards that 18 week commitment between a referral…

Cathy Newman: When can you meet that?

Rachel Reeves: We’ll make progress in this first year, but certainly in this first year 40,000 additional appointments every single week. That was our manifesto commitment. We will deliver it in our first year.

Cathy Newman: The NHS is saying it won’t be until the end of the parliament before they can reach that target. Is that acceptable? You want them to go faster?

Rachel Reeves: We want to go further. We want to go faster. But what I can commit today, because of the money that we’ve put in, there will be 40,000 additional appointments every single week. That means people at home today who are waiting for an operation, for an appointment, for a procedure will get it sooner than if we hadn’t put that money in.