Chancellor of the Exchequer Rachel Reeves vowed that “there will be no return to austerity” in Britain under a Labor government.
He said his plan to grow the UK was to “open up investment” and bring prosperity back to the country.
We spoke to him about the UK economy, austerity, the NHS and gifts for Labor cabinet members.
Krishnan Guru-Murthy: There was a clear change of tone at the conference, that doom and gloom was giving away more of the future. How happy and optimistic are you today?
Rachel Reeves: I have never been more optimistic about the future of our country and our country’s prospects. We have great businesses, entrepreneurs, people who work hard and want to live. For the past few years, instability and chaos have gripped our country. But now we return stability to our public finances, and we are making pro-business, pro-growth reforms to unlock investment, which is the lifeblood of a successful developing economy.
Krishnan Guru-Murthy: Do you think you are beyond doom and gloom? You have depressed people and they are afraid of whether taxes can go up, so they don’t spend.
Rachel Reeves: I had a choice to make when I learned about the legacy and the £22 billion black hole in the public finances. I can either continue with the Conservative approach to cover or I can be honest and transparent with people about the scale of the challenge and how the road is more difficult and steeper than you can imagine on the 4th of July. I thought it was right to be open and honest, but it also set the path to bring stability back to public finance and stability, in the end, is the foundation stone for a successful economy. But coupled with reform, I know we can bring that investment back to the UK to grow our economy, to improve living standards and bring good jobs, paying decent wages, across our country.
Plan for growth
Krishnan Guru-Murthy: So let’s look at your growth strategy, what are your plans for growth?
Rachel Reeves: Our plan for growth is to unlock investment. We are the only G20 economy with investment less than 20 percent of GDP. We need to boost investment, both public and private. The Treasury that I’m in now needs to consider the benefits, not just the costs, of investment, and we need to use that private sector investment. That is why, for example, we have created a National Wealth Fund to invest in some future projects and industries. That’s why we’re overhauling the pension system and that’s why we’re overhauling the planning system so we can rebuild Britain.
Krishnan Guru-Murthy: So will these measures pay off? You must have done modeling, how much will the reform plan increase growth?
Rachel Reeves: The Office of Budget Responsibility will be the arbiter of the impact of growth. But if you add all this, if you can bring the investment, we do the things that the business told us will increase the investment and we will define in more detail the budget and the spending review. But we have been called in planning decisions around onshore wind, housing and data centers to unlock private investment that wants to come to Britain, but for a long time has been held back by a bureaucratic and sclerotic planning system. And our National Wealth Fund, a £7.3 billion endowment, to help bring private sector investment into sectors like…
Krishnan Guru-Murthy: How much growth will the National Wealth Fund achieve?
Rachel Reeves: You add it all up, and we will determine in the Office of Budget Responsibility the impact of these changes. But I believe that if we listen to business, as we do, and we do the reforms that we say are necessary to unlock investment, then we can grow the economy and bring that prosperity back to our country.
Krishnan Guru-Murthy: You are under pressure from various economists, Mariana Mazzucato, Mohamed El-Erian, even Gus O’Donnell, the former cabinet secretary, signed a letter this week asking you to change the fiscal rules, the borrowing rules, so that you can increase public investment. Did you see it at least?
Rachel Reeves: Our rules are different from the ones we inherited from the Conservatives. So, rule two is that we will balance every day with tax receipts and we will reduce debt as part of our economy. But the previous government treated capital spending and day-to-day spending as the same. That is not true.
Krishnan Guru-Murthy: But the second one, it’s not, the investment limit. Now, do you see if you can change it to increase the general investment, as you want?
Rachel Reeves: Our rules consider capital investment and daily spending separately. We will balance our daily spending with our receipts, but we can help unlock that space for government investment to leverage private investment. The previous government met the fiscal rule by reducing investment in the economy. And the problem is that it’s harder to achieve growth, so the rewards of that growth are taking longer. I will not make the same mistake. We will ensure that we save that space for investment in infrastructure to leverage the private sector investment needed to grow our economy.
‘No austerity under Labour’
Krishnan Guru-Murthy: You will need quite a lot of growth to fulfill the promise of no austerity, isn’t it? What does it mean to not save? Does that mean that no government department will experience cuts?
Rachel Reeves: What is needed is a combination of money for public services and public service reform. We need to make better use of technology and data to run more personalized public services. We need to be aware of fraud and error, in the tax system and the welfare system. So it’s not just about how much money we spend, it’s about how we do public services differently. But it won’t come back…
Krishnan Guru-Murthy: But austerity means cutting, right? And you’re saying don’t cut it?
Rachel Reeves: There will be no return to austerity under this Labor government. Austerity is incredibly damaging to public services, yes, but also to our economic prospects as it cuts the growth we need to improve living standards and bring business to the UK so there will be no return to austerity. But we need to expand our economy if we are going to be able to realize its potential.
Krishnan Guru-Murthy: But I have been asking you about this ever since you became the opposition. Does this include a department like justice, which is now unprotected, which is cut to the bone, facing real problems in prisons, and now we are seeing real cuts in terms? Can you tell me that they will not cut it, and that all the unprotected departments will be in the same position?
Rachel Reeves: We will set ourselves the allocation in the spending review. We do one year, for the next financial year, in October and then two more years in the spring of next year.
Krishnan Guru-Murthy: But when you say no austerity, you mean it.
Rachel Reeves: There will be no real-term cuts to government spending. Of course, we need to make these allocations department by department. But if you take justice, for example, one of the biggest challenges is making sure that we build prisons and prison spaces. The previous government got into a position where there were no prisons, almost none in the system, which meant that we had to make difficult decisions about the prisoner release plan. We need to build those prisons, build that capacity, also make sure we invest in rehabilitation so that people don’t just go through the revolving door and get out of prison. Here are the reforms that need to be made, the capital investment that needs to be made, along with the money that is needed to run a good and functioning public service.
Krishnan Guru-Murthy: Obviously, your tax measures will come in the budget and this is what everyone is waiting for. But as a principle, what do you think about the hypothetical tax? The NHS is clearly in a lot of trouble. Many people want to have more money. What do you think of the idea of saying ‘this tax, whether it’s on the rich or whoever, it’s on the NHS’?
Rachel Reeves: There are some public services that are on their knees after 14 years of Conservative government. But the NHS is badly affected and the focus of October’s budget is to protect the living standards of ordinary working people, start fixing the crisis in the National Health Service and then rebuild the economic foundations to unlock the investment. necessary to grow our economy, so we are not in this difficult situation trying to balance spending and tax receipts because this is a failure to get the necessary investment and growth.
Line is free
Krishnan Guru-Murthy: Finally, I’ve seen you do various interviews this morning and everyone has been asking about the donor line. That must be very frustrating for you, if you’re in this position at your first Labor conference, you want to trumpet the economy and your plans, and you’re faced with the nagging question of who pays for your coattails.
Rachel Reeves: It is understandable that with this level of responsibility there is also an examination, and of course questions should be asked and costs should be examined. When I was shadow chancellor in opposition, I had a good friend who wanted to support me by helping me buy clothes for campaigns and for big events. I can understand that it seems strange to some people. This is not a practice that I plan to continue with the government because I think it is important…
Krishnan Guru-Murthy: Did you check with Sue Gray if it’s okay?
Rachel Reeves: We check with the registrar to declare all donations. That’s what I always do with donations, that is to support writing speeches or research in my office. In opposition, we need to raise funds to do our job. Now we are the government. A higher standard applies to government ministers, especially because of conflicts of interest and I will apply the highest standard.
