Reeves is accused of driving up mortgage rates by fiddling, Starmer under fire over claims of fudged election promises
Sir Keir Starmer and Chancellor Rachel Reeves are facing mounting criticism as Labour prepares to unveil its highly anticipated Halloween Budget on October 30. The government is navigating pressures to increase investment and improve public services, while having promised not to burden “working people” with tax hikes.
During a recent interview at the Commonwealth heads of government summit in Samoa, Starmer clarified his stance on who qualifies as a “working person”, a key point in Labour’s manifesto. He said that people who had invested their savings in rental properties or owned shares fall outside his definition (up to a third of Britons own shares). “The sorts of working people who go out, work hard, and maybe save a bit of money but don’t have the wherewithal to write a cheque to get out of difficulties” are the ones he refers to, he explained.
However, Downing Street later softened the statement, suggesting that owning small amounts of shares, such as through savings accounts, wouldn’t disqualify someone from being considered a working person.
Meanwhile, Rachel Reeves is set to introduce significant fiscal changes aimed at supporting £20 billion annually in new investments through increased borrowing. Writing in the Financial Times, she promised that her “investment rule” would prevent the steep cuts to public sector spending planned by the previous Conservative government. Under those plans, public sector investment was set to fall from 2.4% to 1.7% of GDP by 2028-29, a reduction that would amount to £24 billion annually, according to the Institute for Fiscal Studies.
The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer – and punish families with mortgages. What's even more remarkable is that the Chancellor hasn't seen fit to announce this major change to… https://t.co/5k3SaZldR0
— Jeremy Hunt (@Jeremy_Hunt) October 24, 2024
One of the more controversial moves Reeves is considering involves adopting a new fiscal measure, known as “public sector net financial liabilities” (PSNFL), which takes into account financial assets like student loans. This change would enable the government to borrow more - potentially up to £50 billion a year - while still meeting its goal of reducing debt as a share of GDP. However, market reactions have been cautious, with UK 10-year gilt yields rising to 4.23% as investors remain wary of increased borrowing and opposition politicians have been quick to accuse her of driving up mortgage rates.
Read more: Get ready for a rush of (smaller) borrowers
“Before the election Rachel Reeves promised that she would not ‘fiddle’ the fiscal rules, and now it seems she is going to do exactly that,” said shadow treasury minister Gareth Davies. “Remarkably she is announcing this not to parliament, but to the IMF in advance of the budget. This is already having real world effects, with borrowing costs rising. This uncertainty over additional borrowing risks interest rates staying higher and for longer. It’s families up and down the country who would pay the price.”
The opposition Conservatives have accused Labour of preparing to break its promises by raising taxes. Former Treasury Minister Andrew Griffith criticized Reeves for altering fiscal rules, saying it amounted to "breaking promises like a runaway horse charging through jumps at the Grand National." The Labour government, however, insists that day-to-day government spending will continue to be funded by tax revenues, requiring tough decisions on spending and welfare to meet their fiscal targets.
Starmer sought to ease concerns that tax rises could drive businesses and wealthy individuals abroad. Despite reports from wealth managers that clients are considering moving offshore, Starmer argued that the government’s recent investment summit in London, which the government claim secured £63 billion in corporate investment, demonstrated confidence in Labour’s economic strategy. “There is no reason to” expect an exodus of entrepreneurs, he said, emphasizing that companies remain committed to investing in the UK. Starmer is now second only to Liz Truss for rapid unpopularity.
Keir Starmer has a worse PM job rating than all of his recent predecessors by this point in their tenure (*except for Liz Truss, who didn't last this long)
— YouGov (@YouGov) October 24, 2024
Starmer: 26% well vs 58% badly
Sunak: 29% vs 53%
Truss*: 11% vs 71%
Johnson: 40% vs 49%
May: 46% vs 22%
Cameron: 59% vs 32%… pic.twitter.com/Owjj9O8EyE
Reeves echoed Starmer’s optimism during a visit to Washington for the IMF and World Bank meetings, stating that the government’s Budget would focus on building the “foundations of future growth.” She highlighted investments in areas such as science, clean energy, and infrastructure, following the IMF’s recommendation that the UK maintain public investment to boost long-term economic growth.
Read more: Landlords back report urging action on rental supply crisis
The upcoming Budget will be Labour’s first major opportunity to define its approach to economic policy. As the government walks a tightrope between raising taxes and encouraging investment, both Starmer and Reeves are under pressure to deliver a fiscal plan that balances public service improvement with financial stability.
