Britain’s new finance minister vows tough action to cut massive public debt

Britain’s new finance minister vows tough action to cut massive public debt
Britain’s new finance minister vows tough action to cut massive public debt

The new Chancellor, Rachel Reevesthe first woman to lead the Treasury in British history, has promised to publish an emergency assessment of the spending legacy she is taking over from the new Labour government before the end of the month, when MPs begin their summer recess, warning of tough decisions ahead. In her first speech as minister she insisted there would be no deviation from the hardline stance on reducing the national debt, despite having inherited the “worst set of circumstances since World War II.”

“Our economy has been held back by decisions postponed and decisions avoided,” he said, blaming the Conservatives. “We are faced with the legacy of 14 years of economic chaos and irresponsibility. I will have to make difficult decisions as a result of the mess left by our predecessors.”

Labour sources told reporters the emergency declaration was designed to inform MPs about the state of the economy rather than provide clues about the content of the new budget, which will not be known until the autumn. Reeves wants all his plans to be assessed and scored first by the Office for Budget Responsibility – the independent body that oversees government budgets and accounts.

His roadmap includes a restructuring of planning rules in any case, but Reeves does not want to carry out drastic tax cuts to boost the economy. Rather, Their strategy is to inspire confidence and persuade companies to invest. The now ex-Tory leader Rishi Sunak He tried to achieve something similar after the collapse of the pound with the fleeting Liz TrussThe former prime minister had hoped that by appearing as the more credible figure, interest rates would tend to fall in the mortgage market. But rates have been slowly rising for months.

The market’s jitters are not really about which party is in government, but how vulnerable the UK economy is to debt and how things could get worse if politicians panic. Reeves has promised to behave, but even the Institute for Fiscal Studies has accused Labour (along with the Conservatives) of a conspiracy of silence over the difficult spending decisions they will have to make.

It would be unfair to ignore the pandemic and the wars now marking the geopolitical chessboard, but the reality is that the public finances the Conservatives pledged to fix are collapsing. As belt-tightening has been followed by shocks and waste, public debt has soared. As a share of GDP, taxes are at their highest level in 70 years. The economy is limping along. In real terms, revenues have disappointed since the 2007-2009 financial crisis, the worst period of wage stagnation in two centuries.

The total amount owed by the government now stands at around £2.7 trillion, representing 100% of GDP. The level is more than double that seen from the 1980s until the 2008 financial crisis. But relative to the size of the economy, the figures are still low compared with other G7 powers.

“Over the weekend I made clear to Treasury officials that the manifesto commitments on which we were elected will be met. That includes strong fiscal rules. And it includes our commitments not to increase social security contributions and basic, higher or additional rates of income tax or VAT,” he said.

Ms Reeves said she knew there were some voices arguing the time for caution had passed and Labour’s huge majority gave the government licence to backtrack on the principles of monetary soundness and economic responsibility. “I know many of you are not used to hearing this after the last few years. But I believe the promises a party is elected on must be kept in government and we will do so,” she said. “We do not take lightly the trust of voters who have been burned too often by incompetence, irresponsibility and recklessness.” The Chancellor said getting the economy on the right track was the first step towards stronger and more sustained economic growth.

On the other hand, he stressed that local authorities would be required to meet the construction targets for new housing so that it could be built. 1.5 million homes over the next five yearsInitially, it would be up to local communities to decide where the homes could be built, “but the answer cannot always be no,” he said.

Nowhere was “decisive reform” more urgently needed than in the case of the planning system, Reeves said. “Planning reform has become synonymous with political timidity in the face of vested interests and a graveyard of economic ambition. Our antiquated planning system leaves too many important projects stuck in years and years of bureaucracy before the shovels ever hit the ground.”

New Treasury analysis has found that if the UK economy had grown at the average pace of Organisation for Economic Co-operation and Development economies since 2010, it would have been more than £140bn larger, resulting in an extra £58bn in tax revenue last year. Mr Reeves said: “All governments face difficult choices and I will not shrink from those choices. However, those choices are made more difficult by the absence of the economic growth needed not just to balance the books but also to raise living standards.”

 
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