(Bloomberg) -- The UK’s new Labour government won’t return to the austerity cuts of its Conservative predecessors, Chancellor of the Exchequer Rachel Reeves will promise on Monday, as she pivots toward a more positive narrative after weeks of warning about the dire state of the public finances.
With Labour on Monday hosting what it’s billing as the biggest ever business day at its annual party conference, Reeves is set to dangle the prospect of higher rates of investment as the key to unlocking the growth needed to fund government priorities. In a speech in Liverpool, she’ll underline that “tough decisions” are nevertheless needed due to a Tory legacy of tight public finances.
“I can see the prize on offer, if we make the right choices now,” Reeves is due to say, according to pre-briefed remarks from Labour. “Growth is the challenge and investment is the solution.”
Reeves is under pressure to paint a brighter picture of Britain’s economic prospects having spent much of her 11-week tenure warning of the difficult measures she’ll have to take to address a £22 billion ($29 billion) fiscal hole she’s inherited. That’s raised expectations of tax rises in her budget on Oct. 30, with levies on inheritance, capital gains and property expected to increase.
The problem for Reeves is that such tax rises risk undermining the economic growth she wants to achieve. Her stark warnings on the state of the public finances have coincided with a decline in consumer confidence, which has prompted calls for her to strike a more upbeat tone. They’ve also triggered warnings from corporate Britain against raising taxes on business.
That hasn’t deterred companies from turning up to the conference, with Labour saying in a statement that tickets to its business day — costing £3,000 each — sold out within 24 hours. Some 500 corporate leaders will attend, including over 100 chief executive officers, presidents and chairpersons from companies such as HSBC, Blackstone, Santander, Uber, JP Morgan and ExxonMobil.
“Labour and business have built a real partnership to grow our economy after years of neglect and decline,” said Business Secretary Jonathan Reynolds. “It won’t be easy or quick, but together with business we will break down the barriers to British prosperity, build the infrastructure we need and mend our public services.”
Reeves has already announced measures to address the budgetary hole, including a deeply unpopular decision to cut winter fuel allowance to about 10 million pensioners. The governing party has also been buffeted by controversies including the handling of donations from Labour peer Waheed Alli and in-fighting within Prime Minister Keir Starmer’s top team.
All that means Reeves’s speech — and Starmer’s on Tuesday — come at a pivotal time for a party that swept to power on a landslide just under three months ago after 14 years in opposition, but is now seeking to arrest a decline in popularity ratings that’s accompanied a stuttering start. An Opinium survey on Saturday showed Starmer’s approval ratings have dropped below those of former Tory premier Rishi Sunak.
Reeves will seek to answer her critics by arguing that she needs to address the UK’s challenging public finances before growth can be achieved.
“Stability is the crucial foundation on which all our ambitions will be built, the essential precondition for business to invest with confidence and families to plan for the future,” she is due to say. “We will make the choices necessary to secure our public finances and fix the foundations for lasting growth.”
At a time when the government’s economic position is so tight — Reeves has delayed a raft of road and hospital-building projects due to lack of funds — the chancellor is gambling on a wave of private sector investment to plug the gap and generate the growth that she and Starmer say is Labour’s defining mission in power.
The UK is due to host an international investment summit on Oct. 14, and Reeves sees the event as being of critical importance, a person familiar with her thinking said, speaking on condition of anonymity.
Reeves’s strong language on “no return to austerity” — combined with her pledge to address the fiscal deficit — is a further hint that she’s planning a tax-raising budget at the end of next month. She’ll reiterate election promises not to raise income tax, national insurance, value added tax or corporation tax. That suggests increasing taxes on capital, pensions and property is in scope.
Starmer echoed the line about austerity in an interview with the Sunday Mirror newspaper ahead of the party conference, saying it did “a huge amount of damage” and “we are still feeling the damage now”.
“We’re not going down the road of austerity,” he said. “We’re going to deal with the difficulties in the economy in the Budget and we’re going to deal with it straight away.”
--With assistance from Ellen Milligan.
©2024 Bloomberg L.P.
