Rachel Reeves is taking a massive gamble (Image: Getty Images)
Rachel Reeves took a major gamble with her Chancellorship as she faced down demands by Labour rebels to loosen government spending. She insisted her iron-clad fiscal rules remain “non-negotiable” despite warnings that they are stifling economic growth and will lead to tax rises this autumn.
The under-pressure Chancellor used a major speech to City of London grandees to set out a vision of revitalising Britain’s financial services industry that she hopes will kick-start the economy. It comes after a bruising few weeks for Ms Reeves following humiliating climbdowns over winter fuel payments and welfare cuts. Gloomy figures this week also showed the economy is shrinking again.
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GDP (Image: DX)
Read more: Rachel Reeves plots massive change in desperate bid to save UK economy
In her Mansion House address the Chancellor insisted she will not risk the UK’s economic “stability”, despite pressure from some Labour MPs for higher public spending and looser fiscal rules.
“Growth must be built on a platform of economic stability,” she said.
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“There is nothing progressive about a government that simply spends more and more each year on debt interest, instead of on the priorities of working people.
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“And fiscal stability is a choice that reflects economic reality.
“That is why the Prime Minister, this government and I remain committed to our non-negotiable rules.”
Polling by Survation last month found that 64% of Labour MPs said her fiscal rules inhibited ministers’ abilities to meet their objectives, including raising living standards and improving public services.
Ms Reeves, who made light of her recent tearful breakdown during Prime Minister’s Questions, also unveiled plans to help first-time buyers by announcing that mortgages will be available at more than 4.5 times a buyer’s income.
Rachel Reeves in tears at PMQs (Image: BBC Prime Minister's Questions)
This will create up to 36,000 additional mortgages for first-time buyers over the first year, the Government said.
Britain’s biggest building society – Nationwide – announced last week that it is aiming to increase its high loan-to-income lending limit.
From today (Wed), eligible first-time buyers can apply for Nationwide’s Helping Hand mortgage with a ￡30,000 salary, down from ￡35,000, and joint applicants with a ￡50,000 combined salary – down from ￡55,000.
It is estimated this will support an additional 10,000 first-time buyers each year.
And the Chancellor said she will “consider further changes” to ISAs after confirming that Long-Term Asset Funds can be included in stocks and shares ISAs.
Ms Reeves also highlighted efforts to boost retail investment which she said is currently presented “in a negative light, quick to warn people of the risks without giving proper weight to the benefits”.
Plans include potentially changing the language of risk warnings on investment products to encourage more people, particularly women, to take the leap.
Furthermore, the Chancellor said new powers to mandate pension funds to invest in UK assets were “sending a clear signal” that the Government and industry want to deliver higher returns for savers and more investment for the economy.
“But I am confident that I will not need to use that power because firms see the urgency and importance of this as clearly as I do,” she said.
The “Leeds reforms”, unveiled in the West Yorkshire city, are set to be the biggest set of reforms to financial services for more than a decade, according to the Government.
But the Chancellor concluded her speech by saying: “As I look ahead, it is clear that we must do more.
“In too many areas, regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of growth.
“Regulators in other sectors must take up the call I make this evening not to bend to the temptation of excessive caution but to boldly regulate for growth in the service of prosperity across our country.”
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Sir Mel Stride, the Shadow Chancellor of the Exchequer, said: “Rachel Reeves should have used her speech this evening to rule out massive tax rises on businesses and working people. The fact that she didn’t should send a shiver down the spine of taxpayers across the country.
"For months, major forecasters have warned that Labour’s botched tax hikes would damage economic growth, but now despite saying she would not have to come back for more its clear this failing chancellor is planning to do just that.
"Conservative know we will only grow the economy by backing the makers, the people who work hard, create wealth and jobs, and fund public services. Only the Conservatives will unpick Labour’s damage and fix their mistakes."
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