Rachel Reeves signals first budget will be painful mix of spending cuts, tax rises and higher borrowing
Chancellor Rachel Reeves has signalled her first budget as chancellor could be a painful mix of spending cuts, tax rises and increased borrowing.
Speaking to Sky News after official figures showed the economy flatlined in July with GDP growth of 0.0%, she refused to rule out increasing business and wealth taxes, or further cuts to already strained departmental budgets, as she seeks to address what she says is a dire economic inheritance from the last government.
“I’ve been really honest that there are difficult decisions to come in the budget, on spending, on taxation and welfare, after the mess that the previous government created with the public finances and the state that they are in, that was inevitable,” she said.
“I was clear during the election campaign that, if I became chancellor of the exchequer, tough choices lie ahead.”
Ms Reeves has ruled out increasing personal income taxes, National Insurance and VAT as well as corporation tax, leaving a limited field of other taxes on private wealth and business.
She said her choices in the budget would be directed at getting a grip on the public finances.
“It is important to bring stability back to our economy, but we will do that in a way that helps promote growth, so we can grow our economy and make our country better off,” she said.
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The need to stimulate growth was emphasised by the figures from the Office for National Statistics that showed the economy stalled in June and July, consecutive months of zero expansion, after above-expectation growth in the first half of the year.
The new administration has pinned its entire programme for government on stimulating growth to allow public spending to increase and stay within strict fiscal rules limiting borrowing.
At the same time, they are imposing new obligations on businesses including a slate of workers’ rights reforms that industries fear will increase costs.
Ms Reeves cited an £8bn investment by Amazon Web Services in new data centres as evidence that businesses back her vision.
“Microsoft are investing £8bn here in Britain to create new jobs in technical skills, in AI and digital infrastructure,” she said.
“They’re making those investments, and other businesses too, because this government is bringing stability back to our economy and working in partnership with business to unlock the huge potential. And if we can do that, we can make our country better off.”
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Millions of pensioners will lose winter fuel payments
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‘We will not water down winter fuel plan’
The chancellor also defended her decision to remove winter fuel payments from 10 million pensioners, after the government weathered a 50-strong rebellion by its own MPs in a parliamentary vote last night.
She said it was a response to a £22bn “black hole” in public finances for this year that had to be addressed, and that the loss of up to £300 would be compensated by rising pensions.
“These were not decisions that I wanted to make, but they were the right decisions in the circumstances that we faced,” she said.
“All pensioners this winter have benefited from the increase in the new state pension, which means pensions are worth £900 more than they were a year ago. The state pension is likely to go up by a further £460 next year. That’s not means-tested.
“So we are protecting the most vulnerable pensioners, whilst also starting to get a grip on our public financing years of mismanagement because we expect.”
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The chancellor also suggested more cuts to public services are likely.
Asked if the prisons and justice system could absorb further cuts despite having to release thousands of prisoners early, she said: “On spending, on taxation and on welfare, but those decisions are necessary to start to get a group of our public finances so that we can turn our economy around.
“I am determined not to allow these problems to continue to fester in the way that the previous government allowed that we’re honest about the challenges that we face.”
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Rachel Reeves turning around UK’s finances ‘like Steve Jobs did for Apple’, claims minister
Rachel Reeves will turn around the economy the way Steve Jobs turned around Apple, a cabinet minister has suggested ahead of the upcoming spending review.
Science and Technology Secretary Peter Kyle compared the chancellor to the late Apple co-founder when asked on Sky News’ Sunday Morning with Trevor Phillips where the £86bn for his department is coming from.
Politics Live: Winter fuel payment cut to be dealt with ‘in run up to autumn’
Apple Inc. chief executive Steve Jobs, who died in 2011. Pic: Reuters
Chancellor Rachel Reeves
The package, confirmed ahead of the full spending review next week, will see each region in England granted £500m to spend on science projects of their choice, including research into faster drug treatments.
Asked by Trevor Phillips how the government is finding the money, Mr Kyle said: “Rachel raised money in taxes in the autumn, we are now allocating it per department.
“But the key thing is we are going to be investing record amounts of money into the innovations of the future.
“Just bear in mind that how Apple turned itself around when Steve Jobs came back to Apple, they were 90 days from insolvency. That’s the kind of situation that we had when we came into office.
“Steve Jobs turned it around by inventing the iMac, moving to a series of products like the iPod.
“Now we are starting to invest in the vaccine processes of the future, some of the high-tech solutions that are going to be high growth. We’re investing in our space sector… they will create jobs in the future.”
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The spending review is a process used by governments to set departmental budgets for the years ahead.
Asked if it will include more detail on who will receive winter fuel payments, Mr Kyle said that issue will be “dealt with in the run-up to the autumn”.
“This is a spending review that’s going to set the overall spending constraints for government for the next period, the next three years, so you’re sort of talking about two separate issues at the moment,” he said.
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‘So we won’t get an answer on winter fuel this week?
Scrapping universal winter fuel payments was one of the first things Labour did in government – despite it not being in their manifesto – with minsters saying it was necessary because of the financial “blackhole” left behind by the Tories.
But following a long-drawn out backlash, Sir Keir Starmer said last month that the government would extend eligibility, which is now limited to those on pension credit.
Read more: Spending review 2025 look ahead
It is not clear what the new criteria will be, though Ms Reeves has said the changes will come into place before this winter.
Mr Kyle also claimed the spending review will see the government invest “the most we’ve ever spent per pupil in our school system”.
However, he said the chancellor will stick to her self-imposed fiscal rules – which rule out borrowing for day-to-day spending – meaning that while some departments will get extra money, others are likely to face cuts.
Politics
Minister dismisses US misgivings over Chinese ‘super embassy’ in London – as Tories warn of ‘espionage base’
A minister has dismissed reported US misgivings about plans for a Chinese “super embassy” near London’s financial districts.
Peter Kyle told Sky News’ Sunday Morning with Trevor Phillips that security concerns will be “taken care of assiduously in the planning process”.
Politics live: Winter fuel payment cut to be dealt with ‘in run up to autumn’
There have been protests against the new Chinese embassy. Pic: Reuters
According to The Sunday Times, the White House has warned Downing Street against the proposed massive embassy at Royal Mint Court.
The site is between financial hubs in the City of London and Canary Wharf and close to three data centres, raising concerns about espionage risk.
Asked for the government’s view on the risk, Mr Kyle said: “These issues will be taken care of assiduously in the planning process.
“But just to reassure people, we deal with embassies and these sorts of infrastructure issues all the time.
“We are very experienced and we are very aware of these sorts of issues constantly, not just when new buildings are being done, but all the time.”
He added that America and Britain “share intelligence iteratively” and if they raise security concerns through the planning process “we will have a fulsome response for them”.
However, shadow home secretary Chris Philp said he shared the US’s concerns.
He told Trevor Phillips: “I agree with the United States. We think it is a security risk in the government.
“The Conservatives were very clear. We should not be allowing the Chinese to build the super embassy. It is likely to become a base for their pan-European espionage activities.”
He added that underneath the sites are cables connecting the City of London to Canary Wharf and these could be intercepted.
Sky News has contacted the Chinese embassy for comment.
Read More: Diplomatic win for UK hosting US-China trade talks
China has been attempting to revise plans for the Royal Mint building, opposite the Tower of London, since purchasing it in 2018.
The proposal for the embassy, which would be China’s largest in Europe, was previously rejected by Tower Hamlets council in 2022.
However, Beijing resubmitted it in August after Labour won the election, and the plans were “called in” by Angela Rayner, the deputy prime minister and housing secretary.
It means that an inspector will be appointed to carry out an inquiry into the proposal, but the decision ultimately rests with central government rather than the local authority.
Two large protests were held at the site in February and March, which organisers claimed involved thousands of people.
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