A dash for growth: the shadow chancellor prepares for government

Rachel Reeves is getting ready for government. She stresses that no votes have been cast, but she plans to hit the ground running if — as seems increasingly likely — she walks into 11 Downing Street on July 5 as Britain’s first female chancellor.

In an audacious move that is likely to have Prime Minister Rishi Sunak spluttering, Reeves will on Monday host a breakfast meeting of her “shadow” British Infrastructure Council, assembling some big names in UK finance to discuss her plans for government.

“We’re going to take that council into government with us — the 10 members of that council will continue to work with us and advise us,” she said in an interview at the Financial Times’ offices looking over the City of London skyline.

It is a statement that simultaneously reflects both her determination to show she is serious about working with business, and her belief that Labour is about to win. Polls give the party a 20-percentage point lead over the Conservatives, with election day less than three weeks away.

Sunak’s team successfully lobbied business leaders to stop Reeves convening her advisory panel at the time of Labour’s party conference last year; now, in the middle of an election campaign, City leaders will be eating croissants with the shadow chancellor on Monday.

Labour says chief executives attending include Andrea Rossi of M&G, Charlie Nunn of Lloyds Banking Group and Mike Regnier of Santander, along with senior executives from investment firms CDPQ, IFM Investors, Border To Coast, Pension Insurance Corporation and BlackRock.

Separately, Sir John Kingman, chair of Legal & General, endorsed Reeves’ approach. “There is a huge need and opportunity to raise investment across the UK,” he said. “I greatly welcome Labour’s commitment to address this, especially if they can deliver on planning reform, housing delivery and reducing crazy infrastructure costs and delays.”

Reeves wants to reassure the City that while Labour will be making a dash for growth if it wins power, it will not make a dash to put up taxes on the people who work there, as the Conservatives believe is certain to be the case.

“As I’ve said to you before, we’re not going to have an FT tax,” Reeves said, insisting she had no secret agenda to raise capital gains tax or inheritance tax or to restrict pension tax relief for higher earners. She jokingly asked if the FT was planning to deploy a lie-detector test.

But the Institute for Fiscal Studies says there is a “conspiracy of silence” around tax and spend and that an incoming Labour government would have to find £20bn to avoid making deep cuts to “unprotected” areas of public spending, including local government and prisons.

Indeed, Reeves herself has previously advocated in 2018, while a backbench MP, sweeping tax changes that included increasing capital gains tax, reforming inheritance tax and cutting pension tax relief. Are people not right to be worried? “I’ve changed my mind,” she said bluntly. 

Asked why, she responded: “Since then our growth rate has been even lower than it was before. And the focus has got to be on growing the economy. That is what I want to achieve. I don’t believe that fiddling around with tax rates is the best way to grow the economy.”

Reeves said she would use her mandate to take tough policy decisions — for example, reforming the planning system or seeking a better Brexit deal — rather than raising taxes beyond the £8.6bn of increases already announced by Labour that affect “non-doms”, private equity bosses and private schools.

“I’m going to put my energy and political capital into growing the economy,” she said. “Some of that will mean tough choices, difficult decisions and upsetting some people,” she said. “We’re going to have some of those fights.”

The first big test of whether Reeves can stick to her self-denying ordinance on tax rises will come in her first Budget — if she becomes chancellor — which is expected in the early autumn, with many public services crying out for cash.

She has said that she would stick to the convention that the Office for Budget Responsibility, the UK’s independent fiscal watchdog, should be given 10 weeks’ notice to prepare its forecasts, which would suggest that Reeves could not deliver her first Budget before mid-September.

Given that the party conference season begins on September 14 — normally accompanied by a House of Commons recess — that would suggest early October would be the first feasible date for a Budget.

Reeves was adamant she would not use the occasion to detonate tax bombshells. She rejected the idea, floated by some economists, of overhauling how the Bank of England pays interest to commercial lenders on their deposits to raise some cash for the exchequer. 

“There’s no need to have a tax on banks,” she said, referring to the move. “I don’t believe that doing that would help us achieve what we want to achieve, which is growing the economy.”

She also indicated she was not looking at a revaluation of council tax bands, which have not been updated for decades. “It doesn’t really matter whether I think it’s sensible or not; is that where I’m going to put my political energy? No.”

Reeves also insisted she would not be meddling with the Conservatives’ key fiscal rule, which requires debt to be falling on a five-year horizon, and said she would adopt the same definition of the national debt that the government uses at present. 

Reeves said she would also conduct a spending review “pretty quickly” to set departmental spending totals from April 2025, another daunting challenge. Reeves and Starmer have committed that there would be no return to “austerity”.

On financial services, Reeves has endorsed many of chancellor Jeremy Hunt’s so-called Mansion House reforms, which aim to redirect billions of pounds of pension savings into higher-growth UK companies. She also agreed with Hunt that regulators needed to consider the City’s competitiveness when making rules, saying that she wanted to “simplify the rule book for regulation of financial services”.

There has been talk of a great deal of continuity between Hunt and Reeves, if she becomes chancellor, even “Heevesian” economics. Does she give Hunt credit for stabilising the economy? “Well, he’s done a better job than his predecessor,” Reeves laughs, referring to Kwasi Kwarteng, author of the ill-fated 2022 “mini” Budget.

Reeves admitted that — unlike previous incoming chancellors — she would be unable to arrive at the Treasury and claim she had looked inside the books and realised things were even worse than they looked from the outside, giving a flimsy excuse for immediate tax rises or spending cuts.

“We’ve got the OBR now,” she noted, referring to the fiscal watchdog’s detailed and public scrutiny of the public finances. “We know things are in a pretty bad state,” she said. “You don’t need to win an election to find that out.”