Since Rachel Reeves was appointed Chancellor of the Exchequer in May 2024, she has made several significant announcements aimed at addressing the UK's economic challenges as well as the much publicised tax changes already described in previous posts on our blog.
Her primary focus has been on fiscal responsibility, economic stability, and reforming key areas of public policy.
Economic Policy and Public Spending
Reeves emphasised the importance of economic stability, particularly in keeping taxes, inflation, and mortgages low. She has committed to adhering to robust fiscal rules, which include not increasing National Insurance, Income Tax, or VAT. In her first actions, Reeves implemented a spending audit across government departments, identifying areas where immediate savings could be made. This resulted in £800 million in savings for the current year, with plans to save £1.4 billion next year by scrapping unfunded projects from the previous government. These include the controversial Rwanda migration partnership and the "Advanced British Standard" education program.
Reforms and Cost-Cutting Measures
Reeves announced the cancellation or review of several infrastructure and transport projects that were deemed unaffordable or mismanaged. For instance, she halted projects under the "Restoring our Railways" program and other unfunded road schemes, projecting savings of around £785 million next year. She also initiated a reset of the New Hospitals Programme, which had been criticised for its lack of progress and unrealistic funding commitments.
Support for Public Services
Despite the need for a cautious approach with government finances, Reeves confirmed that the government would accept the recommendations of independent pay review bodies, regarding public sector pay increases. However, this comes at an additional cost of £9 billion, leading her to demand further savings from government departments, including a 2% cut in back-office costs.
National Wealth Fund and Private Investment
To stimulate economic growth, Reeves plans to establish a National Wealth Fund, with the aim of stimulating private sector investment in emerging industries. This is part of a broader strategy to reform the planning system, making it more growth-focused and reducing the bureaucratic delays that have stalled significant projects.
State Benefits and Social Care
Reeves made it clear that reforms to adult social care would not proceed in their current form due to budget constraints, saving over £1 billion by the end of next year. Additionally, she addressed issues in the NHS, where previous commitments, like the construction of 40 new hospitals, have been put under review due to lack of funding and progress.
Summary
Reeves’ tenure as Chancellor so far has been marked by a focus on fiscal discipline, cutting costs from unfunded or mismanaged projects, and prioritising stability in economic management. Her approach indicates a departure from the previous government's spending strategies, with an emphasis on ensuring that all commitments are financially sustainable and contribute to long-term economic stability.
Much speculation has focused on likely tax increases in the forthcoming October 2024 budget, and we will be covering this event in some detail once the fine print is available for analysis.