Will Rachel Reeves's Economic Plan Be Enough to Improve the UK’s Public Finances?

The recently appointed Rachel Reeves faces a daunting task in improving the UK's poor state of public finances. On its own, without a comprehensive plan, the answer is unlikely to be a definitive yes. However, her approach, which includes raising certain taxes, cutting wasteful spending, and addressing benefits, may contribute to a gradual improvement in the nation's financial health.

Proposed Measures and Challenges

Reeves emphasizes the need for raising certain taxes, particularly those that do not target the majority of taxpayers who are not in the highest tax brackets. This strategy aims to minimize the impact on middle-income earners while generating additional revenue. However, measures such as increases in cigarette and vaping taxes and potential EV taxes (despite the latter being seen as more complex) could be politically challenging.

Cutting spending is also a significant part of her plan. The previous administration's wasteful spending is a primary focus for immediate recovery. However, the country still needs to allocate funds to essential services, such as schools, hospitals, and prisons. The reduction of these services in the last 14 years without significant savings has indicated a severe impact on public life. Addressing the lack of economic growth has also hindered the ability to save.

Adjustments to Benefits and Spending

Getting tough on benefits is another objective of her plan. The right-wing media often lauds such policies for their simplicity and cost-effectiveness. However, the goal should be to help people into work and support them once they are there, which is a more resourceful and effective approach. The term "tough" could mean either reducing benefit amounts or targeting fraud and abuse more effectively.

Economic Expertise and Future Outlook

Unlike her predecessors, Reeves exhibits decency, integrity, and a keen eye on the economy. Her commitment to taking necessary measures to strengthen the economy is encouraging. However, there is limited scope for action until 2028, when the UK can expect to recover from the COVID-19 related debt.

The plan to cut spending and tighten benefits, reminiscent of what Labour previously called "austerity," will undoubtedly be painful but necessary. These measures, while crucial, will not alone be sufficient to address the core issue of tax rises. Tax hikes, as history has shown, often depress the economy and inhibit growth. The 1970s approach to nationalization and union power is also not viable given current economic conditions.

Addressing the real problem lies in boosting economic growth. This is essential for generating revenue to reduce borrowing and pay for essential public services. Liz Truss’s recognition of this fact, despite her other failings, underscores the importance of a pragmatic, not idealistic, approach to taxation.

Left-wing thinking often views taxation as a tool for social engineering rather than a means to generate maximum revenue with minimal pain. At present, we cannot afford endless attempts to "squeeze the rich." Instead, policies should focus on practical, not idealistic, tax strategies. Keeping wealth generators in the country, reducing regulations, and allowing the market to do its job are essential. Government intervention in business is rarely successful.

While Reeves was elected on a platform that potentially advocates for these more interventionist policies, the consequences must be accepted. The UK needs to leverage real economic growth to increase its financial stability and improve public services.