Rachel Reeves concedes manifesto pledges may be dropped
Chancellor Rachel Reeves has suggested that Labour manifesto commitments will be ditched amid a “significantly worse” economic inheritance than expected last year.
In an interview with the BBC, Reeves said she would prefer to increase government spending on infrastructure rather than cut taxes for Britons.
When asked whether the government would stick to manifesto commitments, Reeves struck a coy tone – suggesting that manifesto pledges not to raise income tax rates would be dropped.
“When we put together the manifesto, it had in it our spending commitments and the tax changes that would be needed to pay for those. The truth is what we inherited is significantly worse,” Reeves said.
“Last year I had to address the black hole in the public finances. This year we have had the new challenge of the Office for Budget Responsibility downgrading growth forecasts.
“It would of course be possible to stick with the manifesto commitments. But that would require deep cuts in capital spending.
“The reason why our productivity and our growth has been so poor in these last few years is because governments have always taken the easy option to cut investment in road and rail projects, in energy projects, [and] in digital infrastructure.”
The other challenges Reeves pointed to included trade disruption and damage to UK growth prospects from conflicts around the world, adding that no one “could have foreseen” tariffs being imposed on UK businesses in July last year.
Reeves’ principles and priorities
Reeves emphasised the upcoming Budget would focus on the priorities of bringing NHS waiting lists down, reducing government debt and curbing inflation.
The two Budget principles would separately be to grow the UK economy and “fairness”.
The Chancellor said she would look to take do “what is right” and not take the “politically easy choice”. She also said she would “not apologise for bringing down NHS waiting lists” when asked about the higher business tax burden.
The latest comments will be taken as further indication that the Chancellor is set to ditch key manifesto pledges.
She said both spending and tax measures would be taken at the Budget to front up against economic deterioration hitting public finances.
Two-child benefit cap to go
But in the same interview with the BBC, Reeves also signalled that the two-child benefit cap could be removed in full.
“I don’t think a child should be penalised because they’re in a bigger family through no fault of their own,” she said.
The left-leaning think tank IPPR estimated the lifting of the cap could cost in excess of £3bn. The government is expected to act on recommendations in the imminent release of a child poverty review.
In an interview with Sky News, former Chancellor Gordon Brown, whom Reeves described as a “hero”, said he believed the two-child benefit cap would be at least partially removed.
“I am confident that the two-child rule will be addressed. Keir Starmer, I know, is personally concerned and interested in this,” Brown said.
“So I’m hopeful that in the next few weeks we’ll see the kind of action that we’ve been talking about.”
A new spending commitment would widen the fiscal hole, which analysts have estimated to be in the range of £25bn to £30bn.
Researchers at Capital Economics believe the Chancellor could raise as much as £38bn in taxes in order to meet her fiscal rules and build a larger fiscal buffer in the hope of further tax rises being prevented at future Budgets.
Raising taxes by this amount would represent a repeat of last year’s £40bn tax raid, a Budget which Reeves said was a “one-and-done” job.