Reeves says she has to face world ‘as it is’ as she refuses to say she’ll stick to manifesto pledges on tax
Reeves is now taking questions.
Beth Rigby from Sky News goes first.
Q: Will you stick to your manifesto promise not to raise the taxes that working people pay? And, if you won’t, doesn’t that make a mockery of the trust people put in you at the election?
Reeves replied:
I will set out the individual policies of the budget until the 26th of November. That’s not what today is about. Today is about setting the context up for that budget.
And your viewers can see the challenges that we face, the challenges that are on a global nature. And they can also see the challenges in the long-term performance of our economy. And the Office for Budget Responsibility will set all that out. They’ve done the review of the supply side of the economy that looks at the past, but they use the past to predict the future.
As chancellor, I have to face the world as it is, not the world that I want it to be.
And when challenges come our way, the only question is the how to respond to them, not whether to respond, or not.
And as I respond on the budget 26 November, my focus will be on getting NHS waiting lists down, getting the cost of living down and also getting the national debt down.
Key events
Q: Does Reeves have a point when she says the last government put political expediency above the national interest?
Badenoch says “it is utterly ridiculous to see Rachel Reeves blaming everybody except herself”.
Badenoch claims Tory plans to cut red tape would improve productivity
Kemi Badenoch has finished her speech and is now taking questions.
Q: [From ITV’s Carl Dinnen] Reeves said productivity is worse than people realised. How much is that the Tories’ fault?
Badenoch says Reeves should consider what the government has done that might have made this worse. She says productivity fell during the pandemic. She says productivity is particularly bad in the public sector.
And she says the Tories would cut red tape, which would help with productivity.
Badenoch describes Reeves’s speech as ‘waffle bomb’, saying Labour just offering ‘managed decline’
Kemi Badenoch is delivering a speech in Westminster now, and she is using it to respond to Rachel Reeves. Her broad argument is that, if Labour were serious about cutting public spending, as she says the Tories, tax rises would not be necessary.
This morning we saw the extraordinary spectacle of a chancellor, just days before a budget, rushed into a panic speech.
We were told that this was the great moment when Labour would show they had a plan for growth.
Instead what we got was a masterclass in managed decline, a chancellor claiming she was just going to set the context, but instead of clarity business leaders are none the wiser, investors are confused. workers are anxious because the truth is Labour doesn’t have a plan to get Britain working again.
The chancellor’s speech was one long waffle bomb, a laundry list of excuses.
She blamed absolutely everybody else for the choices, her own decisions, her own failures.
Reeves’s speech and Q&A – snap verdict
“Pitch rolling” (see 8.03am) is difficult because it involves managing expectations, and persuading reporters, analysts and voters that something meaningful has been said, without the use of firm, specific announcements. In the circumstances, Rachel Reeves achieved quite a lot.
If there were any people left this morning whole a) had at least took a minimal interest in politics and b) did not realise that the budget is going to involve very large tax increases, they will now be a little wiser. Reeves made it clear to anyone who listened to her speech and Q&A that large tax rises are coming.
Most of us knew that already. What was more interesting was what Reeves said in response to the many questions she got about breaking the manifesto tax promises. On the basis of her replies, it might be rash to say it is 100% certain that this is what Reeves and Keir Starmer will do. But what is apparent is that Reeves has swallowed her objections to that notion. She now seems to have been persuaded by the argument that raising one of the big three taxes she promised not to put up (income tax, national insurance or VAT) would be better than resorting to a short-term fix (see 8.22am, 8.30am, 8.40am and 9.11am) and that voters will accept the case for this decision (see 9.21am). That is a significant shift. Only a few weeks ago, as speculation started to build that the government would have to break a manifesto promise, Reeves was reportedly strongly resistant to the idea.
Some people may suspect that this is all part of some clever expectation management ruse, and that on 26 November Reeves will surprise everyone by not breaking her manifesto pledges. Perhaps. But the chancellor’s plight really is quite dire; it seems far more probable that today she was genuinely hoping to get some credit for candour, not just trying hoodwink pundits in the lobby.
One option Reeves may be considering is the one proposed by the Resolution Foundation – raising income tax by 2p in the pound, but reducing employee national insurance by an equivalent 2p. While this would be a technical breach of the manifesto, Reeves could argue that she was somehow respecting it in spirit (because for most working people the cut would cancel out the rise). The measure would still raise £6bn. In its report today, the Resolution Foundation says:
[This move would] particularly raise taxes on pensioners, the self-employed and some capital income, who all face lower tax rates than working-age employees. But pensioners’ living standards have increased by much more than those of working age – typical pensioner incomes have increased by 21 per cent over the past 20 years compared with just 4 per cent for those of working age – and with the state pension going up £560 next April, only pensioners with incomes above £40,000 would be worse off overall in cash terms.
Reeves says spending cuts proposed by Tories would have ‘devastating consequences for public services’
During her speech Rachel Reeves included a passage attacking Reform UK and the Conservatives for their budget proposals. This is what she said;
My opponents will tell you that they could do more.
Reform promised savings from our public services.
And yet in Kent county councill, and councils they run across Britain, apparently they can’t find a single penny and instead plan to increase council tax on more than two million people.
And the Conservatives, who promised £47bn, when, during 14 years in power they oversaw rising welfare costs and a growing civil service. What are they doing for 14 years?
Let us be clear; there is no way that cuts on that scale – equivalent to cutting our entire armed forces or cutting every single police officer in the country, twice over – could be delivered without devastating consequences for our public services.
Austerity, reckless borrowing made-up numbers – they are the problems, solutions. T
They are the mistakes of the past, which would only take us backwards. I will not repeat them.
During her Q&A Rachel Reeves was asked if she agreed with Reform UK, who want to stop people with anxiety getting health and disability benefits. Reeves essentially ducked the question, saying it was a matter for health practitioners.
How UK borrowing costs fell as Reeves was speaking
Government borrowing costs fell as Rachel Reeves was speaking, Graeme Wearden reports in his business live blog. He says:
The chancelllor’s promise that she has an ‘iron clad’ commitment to her fiscal rules is probably reassuring bond investors.
The yield, or interest rate, in UK 10-year bonds has dropped by 4.5 basis points (0.045 percentage points) to 4.39% this morning (from 4.43% last night).
The yield on 30-year bonds has dropped by 5 basis points, to 5.166%.
Those are relatively small moves, but certainly moving the way the Treasury would like to see.
While tax rises are unpopular with voters, the bond markets tend to approve of them, and traders may have been responding to the message Reeves was sending.
The Treasury has now published the text of Rachel Reeves’s speech on its website. Because it’s on a government website, the party politcal content has been taken out.
The Treasury is calling it a “scene setter” speech.
Reeves suggests voters will see doing ‘right thing’ as more important than sticking to manifesto pledges
Pippa Crerar from the Guardian asked Reeves why she was saying she fixed the foundations of the economy last year when now she is having to come back for more revenue.
In response, Reeves suggested she was referring to the way she changed the fiscal rules last year, which allowed much more investment.
She also said she was determined “to beat those forecasts” on productivity. But she said she had deal with the OBR forecasts; if she just ignored them, then interest rates and inflation would go up.
Crerar also asked how important she thought it was for politicians to keep their promises.
And Reeves replied:
I think it is important that people are honest.
As I said, everyone can see that this year has thrown many more challenges.
It would be possible to cut capital spending, to change the fiscal rules, to make the numbers superficially add up all. But I’m not convinced that would the right thing for our country.
I have to respond to the world as it is rather than the world I might want [it] to be.
I believe, in the end, the public will respond better to doing the right thing than just doing the expedient thing.
Reeves says she and Starmer will put national interest ahead of political expediency ‘every single time’
Reeves also told Riley-Smith that she and Keir Starmer would always put the national interest first.
If you ask me what comes first, the national interest or political expediency, it’s a national interest every single time with me. And that’s the same for Keir Starmer too.
Reeves says UK still paying price for Liz Truss’s mini budget
During the Q&A Ben Riley-Smith from the Telegraph said that Reeves was saying she was going to do what was right but not popular.
Reeves joked “I’d like to do both.” But she said doing what was right came first.
Riley-Smith asked if she was willing to do that even if it meant losing the next election.
Reeves replied:
The problem of the last 14 years is that political expediency always came about the national interest. And that is why we are in the mess that we are in today.
Reeves also claimed the UK was still paying the price for Liz Truss’s mini budget.
Why are borrowing costs higher in England, in Italy or in France? The reason they are is because the damage done by that mini budget.
It might have been three years ago, but we’re still paying the price of that.
The BBC’s Chris Mason also asked Rachel Reeves how she made such a mess of her home rental arrangements, claiming not to know that she needed a rental licence she had championed those rental schemes hereself.
In response, Reeves just said she had nothing to add to what was said last week in her exchange of letters with the PM.
Q: [From Kitty Donaldson from the i] Hasn’t the PLP made things worse, because it is unfair to raise tax when you are not cutting welfare? And will you get rid of the two-child benefit cap?
Reeves said that it was unfair to blame the PLP (ie, the Labour MPs who voted against the proposed welfare cuts earlier this year) for the UK’s productivity problems. She said the productivity downgrade was “the most impactful thing” in the budget process.
She did not address the two-child benefit cap part of the question.
Q: [From the FT’s George Parker] Will your budget make life harder for employers?
Reeves said people should not talk the perfomance of the economy down. She said the UK was the fastest growing economy in the G7 in the first half of the year.
She said she recognised the need not to discourage employment.
