1 week Ago By Hugo Gye
In the days after Rachel Reeves set out her first Budget on 30 October, ministers feared it could be about to go wrong in the most humiliating way possible. Labour was elected to office partly due to public anger at the way that Liz Truss’s “mini Budget” of 2022 prompted a huge market meltdown, pushing up the cost of borrowing for the state and individuals alike. And yet, the immediate aftermath of the Chancellor’s announcement looked as if it might be a smaller-scale repeat, with bond yields rising and the value of the pound down.
Government insiders admit that it was a “bumpy” time – but they say the markets’ turbulence calmed down within a few days, and the Budget itself was knocked out of the limelight by Donald Trump’s return to power in the US . However, the decisions made by Reeves continue to reverberate around Westminster and beyond – while events in Washington may not have helped to stabilise the situation. Countryside groups are still furious about the decision to impose inheritance tax, albeit at a discounted rate, on family farms, with rolling protests planned over the coming weeks.
And many businesses, particularly those which employ a large number of workers on relatively low pay, are grumbling about the hike to employers’ national insurance which accounted for the majority of the £40bn in Budget tax rises. Labour business backers Among corporate leaders who endorsed Labour before the general election, there is little surprise about the decision to increase tax in order to boost public services – but there is growing frustration over the failure to lay out clear plans to ramp up economic growth. GDP figures published on Friday show that the UK economy grew by just 0.
1 per cent in the third quarter of the year, far from the Chancellor’s goal of attaining the fastest growth in the G7. Iain Anderson, chairman of the communications giant H/Advisors Cicero, carried out a review of business relations for Labour this year. He told i : “People want to understand where the growth is coming from.
That’s what business people really want to hear. So the long-term strategy, the investment plan for Britain, has be projected more visibly.” Frank McKenna, chief executive of networking and lobbying business Downtown In Business, is one of the 120 business leaders who signed a letter backing Labour before the election.
He warned that firms were feeling “unloved”, saying: “There has been some pushback and criticism from some members we work with – particularly in the hospitality sector. “Others in construction and property are more generous in being prepared to take the short-term hit, so long there is a plan to deliver growth. That’s the key – getting growth.
The clarity is not quite there. The plan isn’t as clear as it needs to be. They say, ‘We will cut rid red tape and we’ll allow people to build, build, build’.
That has got to happen as quickly as possible.” Gareth Quarry, a former Conservative donor who defected to Labour, was more positive, saying: “The parlous state our country finds ourselves after 14 years of Tory chaos meant of course there was going to be some discomfort and pain. Better to get it out the way now than tinker around the edges, and better to put it on the shoulders that can bear it.
“Give them time. If they can get growth moving in the right direction, everyone will look back and say, ‘It was uncomfortable at the time, but it was worth it’.” Growth is not enough On Thursday night, a fortnight after the Budget, Reeves unveiled the next step in her growth plans with a speech at Mansion House in the City of London where she promised to rip up some of the red tape imposed on banks and other financial services after the 2008 crash.
“We didn’t come in to government to raise taxes,” a senior Labour source told i . “We want lower taxes. We came in to government to increase economic growth.
” The Treasury is quietly hopeful that the existing growth forecasts may be upgraded by the Office for Budget Responsibility at the spring statement in a few months’ time, which would automatically allow more cash to be poured in to public services with no further increase in tax or borrowing. But Reeves and other Labour MPs acknowledge that growth alone is not enough – as shown by the US election, where voters turned decisively against the Democrats despite America’s GDP figures being the envy of the world. “It’s really important that we show to people the benefits of economic growth in their everyday lives, and not just growth in the abstract,” one MP said.
The problem is that Trump’s election could scupper the UK Government’s plans by destabilising the world’s economy in a way that may end up sparking turbulence in Britain. “We’re not like America, if there are economic blips then we can’t just shelter from that,” one Labour MP said. Another added: “If we end up in a tariff war, and an inflationary tariff war, then inflation goes up again and we could end up being doomed no matter what we do.
” UK is a safe haven An alternative view holds that Trump-inflicted chaos could be helpful for the UK by emphasising the relative political and economic stability that Britain could offer investors – a point subtly made by Sir Keir Starmer during his trip to the COP29 climate summit this week. A Labour MP urged the Government to take advantage of the situation, saying: “In light of what has happened, we’re in a position to put forward the argument that stability is what is needed for the economy, and attract international investment that way. Because Donald Trump is, whatever else you may think of him, not a predictable person.
There’s a case we are now the most stable country in the G7!” One minister insisted that investors are telling the Government the UK is being increasingly viewed as a “safe haven” as everywhere else is a “basket case”. But they also defended Starmer’s attempts to get close to Trump, saying: “We’ve got to be a grown up government. I’ve had meetings with all sorts of people I’d rather not have but it’s part of governing.
” A different minister added: “We’ve said all along we would work with whoever won. We will work with Trump. And we’ve been consistent on that despite some people’s attempts to create turbulence.
” And Iain Anderson said: “There may be a way for Britain do a deal with the US and avoid tariffs. The campaign rhetoric from Trump may be different to what happens. Trump does like the UK.
There’s an opportunity for Britain to be a bridge.” EU a ‘no-brainer’ But despite the Government’s policy of avoiding any direct criticism of Trump, the Labour party’s deep-rooted hostility to the erratic Republican may restrict the Prime Minister’s ability to cosy up to him. One supporter of Starmer said: “Keir might struggle to give Trump the big state visit that Theresa May did last time, because she didn’t have to deal with the views of 400 Labour MPs!” For others within Labour, the lesson of Trump’s victory is that it is time to speed up reconciliation with Brussels – for example, by accepting the EU’s request for a “youth mobility scheme” which has previously been rejected by Starmer as being too close to free movement of people.
A senior figure within the party told i : “A youth mobility scheme is just under-30s, they have to work, they’re not a drain on the NHS or social care. And we have all these vacancies in health, in hospitality, in technology. It’s a no-brainer.
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