The Chancellor has no shortage of critics, but the tide may be turning in her favour, writes TERRY MURDEN
Of all those who have passed through the business headlines this year, few have managed to generate the levels of fury, angst, frustration, despair and outright hostility as the Chancellor of the Exchequer. Rachel Reeves, or Rachel from Accounts as she is dismissively known, has managed to unite the nation in a chorus of disapproval that would make the Old Firm boo-boys sound timid.
Her CV, already finessed with questionable attributes for the job, is now littered with a track record of trashing pubs, clubs, restaurants and shops as well as thousands of jobs after piling taxes and other costs on businesses that are a constant reminder that her plan is misguided and, ultimately, destined to fail.
Yet Britain’s first female Chancellor has survived the noise of political battle, hugely unpopular hikes in business costs, and claims that she simply does not understand how the economy works. Her latest budget did not prove her undoing, as some expected, nor has she yielded to the combined forces of the oil and gas sector to change course on energy taxes, nor to the SME lobby’s constant reminders of the untold damage caused by high labour and property costs.
Is this someone with a death wish? Or is she just made of unbendable girders? There is either a stupid stubbornness in her madness, or she really will prove that the unpalatable medicine will cure the economy’s ills.
The woman who cried in the Commons for reasons yet to be fully explained, has not only survived eighteen months of derision but has even begun to win a few admiring glances. The Chancellor’s commitment to her fiscal rules has won support among investors who have priced yields lower in recent months, potentially saving the taxpayer billions in interest charges. The governor of the Bank of England, Andrew Bailey, credited her action in the November budget as a signal for lower inflation and lower interest rates next year.
The UK is on track to spend an eye-watering £92bn on interest payments on its debt this year – about 7.5% of government receipts. However, the cost of borrowing has been falling since September and is on track to halve over the course of this parliament.
This is making the UK’s coming fiscal consolidation the fastest in the G7, which has led to the IMF giving the country’s fiscal policy its blessing, saying its “fiscal plans strike a good balance between supporting growth and safeguarding fiscal sustainability.”
William Ellis, senior economist at the Institute for Public Policy Research, says: “The premium on UK borrowing costs appears to be easing, showing that markets are responding to growing confidence in the government’s fiscal approach. Sticking to its fiscal plans could save the Exchequer billions and free up fiscal space in the future.”
Carsten Jung, an associate director at the institute, adds: “With clear, credible fiscal plans, the UK could be a star performer in the G7 — and simply reassuring markets that we’ll stick to those plans could save billions.”
Dave Ramsden, a deputy governor at the Bank of England, told MPs on the cross-party Treasury committee earlier this month that bond market volatility was lower in the run-up to Reeves’s budget last month than for fiscal events overseen by the Conservatives at the end of their parliamentary tenure.
Markets were orderly after the budget and there “were no concerns” about financial stability, “which of course there have been on previous occasions in the UK and in other jurisdictions”, he said.
Saving billions on borrowing charges frees up cash to invest in public services. And that was the plan from the start. Reeves could even be on course to announce tax cuts in the remaining years of the parliament.
So has the tide turned for the Chancellor? The next year does look a little calmer than the choppy waters of the post-pandemic, war-afflicted global economy that has affected us all. With a settlement in the Israel-Gaza conflict and a possible ending of hostilities in Ukraine there will be an easing of cost pressures on supply chains and raw materials.
At home, though, the Chancellor has yet to satisfy her critics that she has a grasp of the devastation caused by what she insists is necessary pain. Her priority has always been to curry favour with the City institutions – hence the admiring glances – while leaving the corner shops and cafes to carry the burden of her tax rises. Her refusal to bring forward changes to North Sea tax levies is a huge mistake.
She is, at least, admitting that the green levies on industry are too punitive on business and the consumer. Sir Jim Ratcliffe, the billionaire industrialist who owns chemicals giant Ineos, has called for an end to the ‘idiotic’ carbon tax. She appears to listen to Sir Jim, so maybe she will take heed of his message.
There could also be an easing on other green targets, including the deadline on petrol and diesel cars. Her National Wealth Fund is beginning to feed those infrastructure projects that needed a kickstart, not least in re-gridding the power network. Airports are expanding, nuclear power is coming and the railways are getting investment. Industrial renewal has been a part of the plan and it is beginning to happen.
In 2024 Britain voted for change. But for change that made life better, not worse. With unemployment rising and the economy stagnant, there is a possibility of recession. The Chancellor has time to put right the mistakes of her first months as the country’s CFO, reduce the tax burden, and prove that her grand scheme will finally come good.
Terry Murden was Scotland Editor and Business Editor at The Sunday Times, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business
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