Reeves’ Risky Policies May Leave UK Economy in Tatters

Budget 2024 The Looker asked our political editor to sum up the budget and whist he is still to see the full list of actions this is how he summed Rachel Reeves first budget. Rachel Reeves, the UK’s first female Chancellor, presented her much-anticipated 2024 budget this week, promising a “decade of national renewal” and…

Written by

David Wimble

Published on

October 30, 2024
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Budget 2024

The Looker asked our political editor to sum up the budget and whist he is still to see the full list of actions this is how he summed Rachel Reeves first budget.

Rachel Reeves, the UK’s first female Chancellor, presented her much-anticipated 2024 budget this week, promising a “decade of national renewal” and a Labour-led economic revival. However, beneath the ambitious language and promises of better public services lie a series of decisions that may come at a heavy cost for British workers, businesses, and taxpayers. Critics argue that Reeves’ policies are more about political showmanship than sound economics, and could risk undermining the very stability she claims to champion.

A Costly Mandate for Change

From the start of her speech, Reeves positioned herself as the leader of an economic revolution, claiming the UK had “voted for change.” Her self-assured statements implied that Labour is set for a decade in power, brushing aside the idea of scrutiny or dissent. Peter Bird, The Looker’s political correspondent, argued that Reeves has built a risky political narrative around “change” while offering few specifics on how her costly policies will actually benefit ordinary people in the long term.

“Reeves talks about making people feel better off, but that’s easier said than done,” Bird observed. “She promises ‘more pounds in people’s pockets,’ but her proposed tax increases, especially for businesses, could lead to higher unemployment and reduced growth—hardly a recipe for prosperity.”

Burdening Businesses with Higher National Insurance

One of the most controversial moves in Reeves’ budget is her decision to raise National Insurance (NI) contributions for employers from 13.8% to 15%, while lowering the threshold for contributions. These measures are projected to raise £25 billion a year, but businesses warn that the hike will stifle expansion and may lead to job cuts.

“Labour claims it’s protecting workers, but this is a tax on jobs,” Bird said. “Employers already struggle with rising costs, and an additional tax burden could be the final nail in the coffin for many small businesses. The result? Fewer jobs, reduced business growth, and potentially higher prices for consumers.”

While Reeves argues that the extra revenue will fund much-needed improvements in public services, critics contend that it’s an unsustainable approach that risks damaging the very economy Labour is trying to rebuild.

Misleading Claims on Personal Tax Stability

Reeves also announced that personal income tax thresholds will be indexed to inflation starting in 2028. She portrayed this as a commitment to keeping Labour’s pledge not to raise taxes on working people, but it’s hardly the “rabbit-out-of-the-hat” moment she claimed it to be. With inflation and living costs already high, waiting until 2028 to offer tax relief seems more like a political stunt than genuine support for working families.

“This so-called tax stability is more of a sleight of hand,” Bird remarked. “By the time any real benefit reaches taxpayers, they will have endured years of squeezed incomes and stagnant wages. It’s hardly a win for working people.”

Tax Hikes on Capital Gains and Inheritance – A Blow to Savers and Small Business Owners

Reeves’ budget introduces an increase in capital gains tax, raising the lower rate from 10% to 18% and the higher rate from 20% to 24%. While she was careful to exclude second properties from further increases, critics argue that these measures punish savers and small investors, putting the burden on those who are already contributing to the economy.

“Capital gains taxes hit savers and investors, not just the wealthy,” Bird pointed out. “Reeves’ approach risks disincentivizing investment, which could have knock-on effects across the economy, particularly for small business owners and those looking to invest in their future.”

Reeves also announced reforms to inheritance tax, freezing the threshold and targeting agricultural and business assets with new levies. While she claims these changes will raise £2 billion, they could end up hurting rural communities and family-owned farms—a demographic Labour has traditionally struggled to win over.

first budget for Rachel Reeves

Minimum Wage Increase: Risking Job Losses in Small Businesses

Reeves’ pledge to increase the national living wage by 6.7% to £12.21 per hour may sound like a win for workers, but economists warn it could backfire. Many small businesses, already hit by inflation and rising costs, may be forced to cut jobs or reduce hours to stay afloat.

“Reeves may think she’s doing workers a favour, but this increase in minimum wage could actually hurt them,” Bird cautioned. “Small businesses are the backbone of the UK economy, and they can’t simply absorb these additional costs. When faced with tough choices, many will likely cut staff or even close down.”

Labour may hope the wage increase will be a vote-winner, but the reality is that higher wages don’t help if there are fewer jobs available. Once again, Reeves’ policies may be more about optics than actual economic support.

Sin Taxes and the “Nanny State”

In a bid to appear tough on public health issues, Reeves announced further increases in tobacco taxes, a new levy on vapes, and tax hikes on alcohol. While these so-called “sin taxes” might seem like easy targets, they will ultimately hit consumers, especially those in lower income brackets, who may rely on these products.

Bird argued that these measures reflect Labour’s willingness to embrace “nanny state” policies. “Reeves’ ‘sin taxes’ come across as punitive and out of touch with ordinary people,” he said. “Meanwhile, the meager 1p cut on draught beer duty is little more than a gimmick to distract from the heavier taxes elsewhere.”

Fuel Duty Freeze: A Temporary Relief with Long-Term Consequences

Reeves decided to extend the freeze on fuel duty for another year, a measure introduced during the Conservative administration in response to inflation. While popular with drivers, the freeze comes at a cost of £3 billion—a heavy price for short-term political gain, critics say.

“The fuel duty freeze may be politically safe, but it’s a missed opportunity to implement a sustainable policy on transportation and fuel efficiency,” Bird argued. “Labour is simply avoiding the hard decisions while banking on a quick popularity boost.”

Big Spending with Little Long-Term Impact

The budget allocates a significant portion of spending to schools, the NHS, and housing, with a 19% increase in education funding, a £22.6 billion boost to the NHS, and £5 billion towards affordable housing. However, critics say this spending spree fails to address the root causes of problems in these sectors.

“Throwing money at education and healthcare is not enough if there are no structural reforms,” Bird remarked. “Labour is repeating past mistakes, where funds were poured into public services without real change. The NHS, in particular, needs comprehensive reform, not just more cash.”

In housing, Reeves’ promise to build 1.5 million new homes is ambitious but lacks a clear plan for how it will be achieved. “Without addressing planning regulations and land availability, this is just another empty promise,” Bird noted.

Transportation Promises Fall Short

While Reeves has pledged to support the Transpennine Route and the HS2 extension to London Euston, her transportation plan lacks the scope and ambition expected for a government promising “national renewal.” Her commitment to fix potholes is unlikely to impress voters who expected transformative investments in infrastructure.

“This budget doesn’t deliver the major transport improvements that the north needs,” Bird argued. “The investment in rail upgrades is piecemeal and falls short of addressing long-standing issues.”

Fiscally Irresponsible Rules on Borrowing

Finally, Reeves introduced new rules on borrowing, pledging not to borrow for day-to-day spending and aiming to balance the budget within three years. However, critics argue that these rules are merely symbolic and do little to address long-term fiscal challenges.

“These fiscal rules are a smokescreen,” Bird said. “They give the illusion of responsibility, but the reality is Labour is racking up debt while only paying lip service to financial discipline.”

Closing Remarks: More Rhetoric than Reality?

In her concluding remarks, Reeves painted Labour as the party willing to make “tough choices” for the UK. However, critics say her budget is filled with risky, high-spending policies that may lead to unintended consequences for the economy.

“Reeves’ budget is less about real economic renewal and more about setting up political talking points,” Bird concluded. “The UK needs careful management, not a reckless spending spree disguised as investment.”

As it stands, Reeves’ budget risks being remembered not as a plan for growth, but as a costly gamble that may leave the UK economy—and its citizens—worse off in the long run.