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Reeves: We’ll stick to fiscal rules despite geopolitical challengesThe House of Lords economic affairs committee begin by asking chancellor Rachel Reeves about her growth plans:Q: What is your strategy to achieve growth, without borrowing more than your fiscal rules allow or by boosting current spending more than your tax commitments allow?Reeves says we are living in an “age of insecurity”, and economic policy has to respond to that.She also points to her “challenging economic inheritance”, with high levels of tax as a share of GDP, historic high levels of government debt, and “very poor” economic growth over the last 15 years due to weak productivity growth.So the growth strategy has to address this.Reeves says the government’s growth strategy is about building “resilience and stability”.Stability means fiscal rules which the government sticks to – the pledge to fund day-to-day spending through tax receipts, and to have debt falling as a share of GDP while still delivering investment.Reeves says this stability has allowed the Bank of England to cut interest rates four times in the last year.
We have faced challenges this first year. The international geopolitical backdrop is probably not one that any government would want, but that’s what we have.
Despite that, Reeves insists that the government showed the “political courage and strength” to stick to those fiscal rules in the budget, in the spring statement and in the spending review.“We will continue to do so,” she pledges.[Reminder: economists believe Reeves may need to raise taxes in the autumn budget, after borrowing surged over City forecasts in June].ShareKey eventsShow key events onlyPlease turn on JavaScript to use this featureLord Razzell probes chancellor Reeves over her controversial increase in employers’ national insurance contributions.Q: If you had the time to go into your local pub, they’d complain to you about the impact. Did the Treasury model the impact of the NICs changes?Rachel Reeves says the Labour government discovered a number of unfunded spending commitments when it entered office, so she decided to increase taxes on businesses and the wealthiest by £40bn in the budget.She says the government took steps to protect smaller firms from the NICS increase, such as increasing the Employment Allowance, which cut the cost of employing people on the minimum wage.She concede that the NICS increase has been painful for businesses. But the counterfactual, she insists, would either have been higher taxes on working people, cuts to public services, or higher borrowing.ShareReeves declines to rule out wealth taxesFormer chancellor Lord Lamont then asks his successor if she will rule out a wealth tax, something which some Labour MPs are demanding.Q: Doesn’t the whiff of a wealth tax undermine confidence?Reeves says the government made commitments before the last election about various taxes related to working people.But she declines to speculate about a wealth tax, reminding Lamont that he took a similar view in his time at Number 11:
If you start saying no to other taxes, then as soon as you don’t say no people assume that’s the one you’re going to increase.
It is right, and with respect this is what you did in my position, you rightly said that taxes are a matter for a budget.
ShareReeves then tells their Lordships that she wants to retilt the system so more young people can get an apprenticeship, or go to an FE college.The chancellor points out that those who don’t go to university are missing out, saying:
At my school, where I went – quite a lot of years ago now – I was in the very small minority who went to university. The government carried on investing in my education for years, very expensively.
In contrast, many of the girls at Reeves’s school left at 16, or 18, despite being bright “because they didn’t have those aspirations” and didn’t get the same opportunities.ShareUpdated at 15.23 BSTQ: How can we get the “British dream” going, to lift productivity?Rachel Reeves cites her reforms to savings, to encourage people to put their spare cash into investments, and to provide “long-term, patient capital” for the nation’s entrepreneurs.The chancellor also suggests part of the British dream is to own your own home – that’s why the government is aiming to raise housebuilding levels.ShareReeves: Nothing progressive about UK’s debt servicing billsQ: What are the fiscal consequences of the government’s u-turn on the welfare bill?Chancellor Rachel Reeves says the changes to the welfare bill will have a cost – probably around £5bn, but the Office for Budget Responsibility will do the calculations.She reiterates her commitment to the fiscal rules, explaining:
We are still very relient on the goodwill of strangers in buying our government bonds. One in every ten pounds of government spending is spent servicing government debt.
Reeves says there’s nothing “progressive” about spending £100bn per year on debt servicing, which she says often goes to US hedge funds, rather than on health, defence, or schools.ShareReeves: unforgiveable of Tories to make unfunded commitmentsRachel Reeves then criticises the previous government of committing to delivering “lots of lots” of projects, without working out how to pay for them.She tells the House of Lords economic affairs committee:
That is how you end up in politics with the levels of distrust of politicians and the democratic system.
I do think it is unforgiveable to make a load of commitments without having a single clue about where the money was going to come from. I’m not going to do that.
ShareUpdated at 15.31 BSTReeves adds that immigration will continue to play an important part in creating the UK’s “skills mix”, before repeating that “we can’t just turn to the immigration lever”.ShareReeves says UK businessses shouldn’t always reach for ‘the immigration lever’ to fill vacanciesChancellor Rachel Reeves is now urging businesses to hire workers from the ranks of the unemployed and economically inactive, rather than relying on migration.She is asked about demographics, with Lord Turnbull citing the “severe worsening” of the dependency ratio.This ratio compares the number of people in a population who are typically not in the workforce (ie, are dependent) with the number of people who are typically in the workforce.Turnbull points the finger of blame at the young, saying it can take people until their mid-20s to get into work today, rather than finding a job at 16. The birth rate is very low, creating a shortage of workers, leading to “very high levels” of net migration, he says.Q: How do you balance protecting the public finances and addressing the needs of the labour market against the social pressures this migration is causing?The chancellor tells the House of Lords economics committe that countries around the world face demographic challenges – the UK’s situation is not the worst by a long way, she says.She says the major independent commission on the pensions system launched yesterday will help address this.Reeves then urges businesses not to turn to migration to fill vacancies.She says there are “a lot of people here in Britain who are not working”, citing that 20% of people of working age are classed as economically inactive, and an unemployment rate of over 4%.
I do not think that businesses should always resort to the immigration lever to fill vacancies. We need to do a lot more to train up people who are already in this country.
ONS data last week showed there were 736,000 vacancies in March to May.Reeves says:
There are plenty of people of working age in this economy, with the right support they should be able to work.
ShareThe Lords turn to tax.Q: Since the war, no government until now managed to bring in more than 35% of GDP in taxation. It’s now around 37.5% – what level do you think is sustainable?Reeves says the Office for Budget Responsibility (the fiscal watchdog) forecasts tax will hit 38% of GDP at the end of the parliament – that’s not a target though!Increasing GDP is the best way to reduce that ratio without cutting investment in public services, she says.ShareUpdated at 14.34 BSTRachel Reeves is then asked why the UK economy is suffering from slugging growth, rising unemployment, stubborn inflation.Q: What’s your diagnosis of the ills of the UK economy?The key problem is productivity, and investment is the answer, the chancellor replies.ShareReeves adds that trade policy is another important area of reform.She cites the UK becoming the first country to reach a trade deal with the US, plus the “reset” with the European Union and a trade deal with India.ShareRachel Reeves then cites the government’s changes to the planning system, which are currently being considered by the House of Lords.She urges the Lords to pass the planning and infrastructure bill quickly, so that the UK can get on with “getting things done”, such as transport and energy infrastructure, or new data centres.The chancellor also points to her pensions review, and yesterday’s review of the water sector, as areas where the government are pushing reforms through.ShareReeves: We’ll stick to fiscal rules despite geopolitical challengesThe House of Lords economic affairs committee begin by asking chancellor Rachel Reeves about her growth plans:Q: What is your strategy to achieve growth, without borrowing more than your fiscal rules allow or by boosting current spending more than your tax commitments allow?Reeves says we are living in an “age of insecurity”, and economic policy has to respond to that.She also points to her “challenging economic inheritance”, with high levels of tax as a share of GDP, historic high levels of government debt, and “very poor” economic growth over the last 15 years due to weak productivity growth.So the growth strategy has to address this.Reeves says the government’s growth strategy is about building “resilience and stability”.Stability means fiscal rules which the government sticks to – the pledge to fund day-to-day spending through tax receipts, and to have debt falling as a share of GDP while still delivering investment.Reeves says this stability has allowed the Bank of England to cut interest rates four times in the last year.
We have faced challenges this first year. The international geopolitical backdrop is probably not one that any government would want, but that’s what we have.
Despite that, Reeves insists that the government showed the “political courage and strength” to stick to those fiscal rules in the budget, in the spring statement and in the spending review.“We will continue to do so,” she pledges.[Reminder: economists believe Reeves may need to raise taxes in the autumn budget, after borrowing surged over City forecasts in June].ShareReeves appears before Lords economic affairs committee – watch it hereBack in parliament, the House of Lords Economic Affairs Committee are holding a session with chancellor Rachel Reeves.You can watch it here:Rachel Reeves appears before parliamentary committee – watch liveShareUpdated at 14.19 BST
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