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Chancellorship of Rachel Reeves

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Rachel Reeves
Official portrait, July 2024
Chancellorship of Rachel Reeves
5 July 2024 – present
PartyLabour
Election2024
Nominated bySir Keir Starmer
Appointed byCharles III
Seat11 Downing Street

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

[edit]
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

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This article is part of
a series about
Rachel Reeves
Family

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"[8] 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.[7][9] 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.[7][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".[12] 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".[7][13] 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".[7]

Tenure

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Reeves appointed as Chancellor of the Exchequer by Keir Starmer, 5 July 2024
Reeves delivers her first speech, July 2024

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]

It is such an honour to be here today as the Chancellor of the Exchequer. I know that responsibility that brings to guide our economy through uncertain times, to restore stability in an age of insecurity, to build prosperity that draws on the talents of working people. To every young woman and girl.... to every young woman and girl watching this: let today show that there should be no ceilings on your ambitions, your hopes or your dreams.

— Rachel Reeves' statement to HM Treasury, July 2024

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

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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

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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

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Main article: October 2024 United Kingdom budget
Reeves holding the red box

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:

  • The budget involved £40bn of tax rises from 2025 and £70bn over the next 3 years to allow more spending and investment over the next 3 years.[39][40]
  • It was announced 2 days before that the minimum wage is to rise by 6.7% to £12.21 an hour. This was confirmed in the budget.[41][42][43]
  • The chancellor promised to respect the OBR's forecasts and invest in the UK's economy.
  • More investment in Skills England.[44]
  • Money allocated for compensation of the victims of the British Post Office scandal and the infected blood scandal.[45]
  • Setting up a probe into COVID-19 related corruption and fraud.
  • Setting up a 'budget value for money board' to curb poor fiscal delivery and value for money on government projects.
  • Carers will be able earn up to £10,000 without losing Carer's Allowance.
  • Miners' pensions to rise by 2.5%.
  • Pension credits to rise by 4.5%.
  • Fuel duty will be frozen.
  • Employees NICs will not rise.[40][46]
  • Employers' NICs will rise by 1.2% to 15% and the threshold fall from £9,100 to £5,000.[40][47]
  • Headline income tax will rise in line with inflation.[40]
  • Employment allowance rises from £5,000 to £10,500.
  • The inheritance tax threshold would be frozen for two more years.
  • The first £1,000,000 of business and farm assets would be untaxed.
  • A vaping tax would come in.
  • Vehicle Excise Duty would be adjusted to favour electric vehicles.
  • Air Passenger Duty will increase dependent on flight class and length.[48]
  • Retail, hospitality and leisure industry will see business rates fall in 2026.
  • Alcohol duty on draught drinks will be cut by 1p.
  • Corporation tax stayed at 25%.
  • The non-domicile tax regime ends in 2025.
  • The small business tax multiplier will be frozen.
  • Second home stamp duty rose from 3% to 5%.
  • The 100% energy investment allowance and the decarbonisation relief would remain.
  • Private schools business relief will end in April 2025 and VAT would be charged on their fees from January 2025.
  • Income tax thresholds will rise with inflation.
  • Breakfast club funding will rise by 300%.
  • Schools budget rises over the next four years.
  • £300m will go to further and higher education.
  • Tobacco duty would rise.
  • £2.5bn more spending for defence.
  • The bus fare single ticket cap rose from £2 to £3.
  • £6.5bn more spending on schools.
  • £2m Jewish holocaust education fund was set up.
  • Greater Manchester and West Midlands county would get further local fiscal autonomy.
  • Low value shoplifting will become a crime.
  • £25m will be used to maintain closed Welsh coal mines.
  • £4.5bn to Scottish, £.1.7bn to Welsh and £.1.2bn to the N. Irish assemblies.
  • National debt was forecast to fall.
  • £1b for the UK's aviation industry.
  • More and better rural broadband internet.
  • £5bn on more housing.
  • £2bn for the UK's automotive industry.
  • £1.4bn on repeating failed repair work on dilapidated and "crumbling old schools" and repairing others for the fist time.
  • More money for the N.W. English authority.
  • More money for and tax relief for the UK's TV and movie special effects industry.
  • £20bn for UK R&D.
  • Rail ticket price rises would not exceed 4.6% of current prices.
  • The TransPennine Rail Upgrade would occur.
  • £650m will be given to fund local transport.[49]
  • £550m more to be spent on road maintenance and filling in 1m road potholes.
  • UK carbon capture projects would get more funding.
  • More funding would be given to green hydrogen and blue hydrogen projects across the UK.
  • £3.4bn will be put in to the UK's Warm Homes Fund.
  • £22.6bn will be given to healthcare.
  • Fund 40,000 new medical appointments would be funded to help cut waiting lists to 18 weeks.
  • £1.3bn more funding for the South Yorkshire Combined Authority Leader to spend on improving and renovating Sheffield's part of the South Yorkshire Supertram.
  • £3bn in war aid to Ukraine.
  • Creation of Great British Energy confirmed, to be headquartered in Aberdeen.

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]

References

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