Why Chancellor Rachel Reeves must resist pressure to become a left-wing Liz Truss
Chancellor Rachel Reeves needs to stick to her guns and her fiscal rules or the consequences could be severe
There is no doubting that Rachel Reeves is in an extremely difficult position – caught between Labour’s pre-election promise not to raise taxes on “working people”, party rebellions over proposed benefit cuts, her own ‘fiscal rules’, and a national debt of £2.7 trillion.
Amid these competing pressures, the Chancellor somehow needs to find a way to fill a £51 billion black hole in the government’s finances in time for her autumn Budget, according to the National Institute of Economic and Social Research, a leading think tank.
Despite the exhortations of some on the hard-left, the Chancellor must avoid seeking the easy way out by suddenly deciding to throw out the rule book and transforming herself into a sort of left-wing Liz Truss. To be fair to Reeves, she shows no signs of making such a horrendous mistake, but political pressure can do strange things to even normally sensible people.
Clever ploy that backfired
The immediate market reaction to the disastrous mini-budget concocted by Truss and her Chancellor Kwasi Kwarteng in 2022 led to her downfall within weeks. Despite containing an eye-watering £45 billion of unfunded tax cuts, the then Conservative Prime Minister pretended this was not a proper ‘Budget’ but only a mere ‘mini-budget’.
They thought this was a clever ploy, as it avoided the need to get an assessment from the Office for Budget Responsibility. However it turned out to be another reason why investors were so worried that the government’s plans did not add up. The result was a fall in the value of the pound, rises in both mortgage rates and the cost of UK Government borrowing, and very real pain for ordinary people.
READ MORE: Labour must avoid killing off 'green shoots' of economic recovery with high business taxes
Ideological dreamers on the hard-left and hard-right may refuse to accept the advice of the ‘experts’ they love to deride, but no Chancellor can afford to be so cavalier and hope to survive in their job for long.
They have to live in the real world and accept the need to ‘balance the books’ to the satisfaction of the markets. The pain of tax rises and public spending cuts may be considerable but, as things stand, it appears there is no other choice.
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