UK Chancellor of the Exchequer Rachel Reeves speaks on the second day of the Labour Party's annual conference in Liverpool, north-west England, on September 23, 2024.
Paul Ellis | AFP | Getty Images
LIVERPOOL, England (Reuters) – British finance minister Rachel Reeves vowed on Monday that Britain would not return to austerity, but said she would make tough choices when she sets out budget proposals next month.
“This will be a truly ambitious Budget… a Budget to deliver the change we promised. A Budget to rebuild Britain. And there will be no return to austerity,” May told a crowd of Labour delegates on Monday.
Her keynote speech, which was briefly interrupted by boos from a pro-Palestinian protester in the crowd, came as Labour began its annual party conference on Monday – its first in power for 15 years.
The ruling Labour government has faced criticism for creating a climate of gloom over the state of the public finances, with Prime Minister Keir Starmer warning against making “painful” decisions after the party won a general election in July.
The UK’s national debt has now reached 100% of gross domestic product for the first time since 1961, new data from the Office for National Statistics showed on Friday. In the fiscal year ending in August, the total deficit was £64.1 billion ($85.4 billion) — about £6.2 billion more than the ONS forecast in March.
Reeves suggested taxes were likely to rise in her upcoming autumn budget on October 30 after discovering a £22 billion ($29 billion) “black hole” in the public finances. Her predecessor Jeremy Hunt of the rival Conservative Party dismissed the claims as “fantasy”.
“I know you are impatient for change,” she told the crowd on Monday. “But because of this legacy that the Conservatives have inherited, the road ahead is harder and more difficult than we anticipated.”
However, Reeves sought to strike a positive note, saying: “My optimism for Britain is stronger than ever. My ambitions know no bounds.”
Reeves defended the divisive move earlier this month to cut winter fuel allowances for millions of pensioners as “the right decision in the circumstances we inherited”.
However, she stressed that the government would not raise income tax, national insurance and social security payments, value added tax (sales tax), and corporation tax.
Instead, it pledged to raise additional revenue by eliminating tax exemption for foreign residents in the UK and reducing forms of tax evasion and avoidance.
“This government will not sit idly by and tolerate those who do not pay their taxes,” she said.
The chancellor also reiterated the government’s position as “proudly pro-business”, pointing to plans next month to host a business summit and announce proposals for a new national industrial strategy. She said this would include measures to enable Britain to reach its net-zero emissions and clean energy targets by 2030.
She added that the government will continue to seek trade deals to “open up new markets”, with negotiations currently ongoing with key partners such as India.
“After years of instability and uncertainty, Britain is open for business again,” she added.
Failure to act quickly on government spending would “undermine the UK’s fiscal position”, with consequences ranging from public services to mortgages and inflation, Reeves warned, evoking memories of former Conservative prime minister Liz Truss’s failed mini-budget.
“The experience of Liz Truss has shown us that any plan for growth without stability leads to destruction,” she said, declaring that “the era of the trickle-down economy is over.”
This comes as public enthusiasm for the government shows signs of waning, less than three months after Labour achieved a historic victory over the Conservatives.
Half of Britons, including a quarter of Labour voters (26%), are disappointed with the government’s achievements so far, an Ipsos poll showed on Friday. Gideon Skinner, senior director of UK politics at Ipsos, said the results were a sign that the government’s “honeymoon” was over.
“There is a decline in pessimism and anxiety after a few months of hope after the election,” Skinner said earlier on Monday at the Labour Party conference.
Tom Selby, director of public policy at financial services firm AJ Bell, said Reeves' speech was unlikely to ease concerns about the financial challenges ahead.
“While the chancellor’s tone may have been more positive today, she left the conference in no doubt that painful decisions will come in the budget on October 30 – although the country is still in the dark about exactly where the axe will fall,” he said in a note.
“Politics, like nature, abhors a vacuum, and the lack of clarity has led to inevitable speculation about potential revenue-raising reforms through pension tax relief, tax-free cash, and capital gains tax,” he added.
