To call the Chancellor of the Exchequer, after just 3 months since she planted her feet under her desk at HM Treasury “Rachel from Accounts” was both insolent, disrespectful in the extreme and unfortunate.
Perhaps describing herself as an economist, after a few years at the Bank of England in a relatively junior capacity was, in hindsight, a little creatively over-zealous.
What is clear to me is that she is far from stupid. She is ambitious in the extreme to see Labour succeed, but blinkered by her political beliefs, rather than approaching her challenging office of state in an economically pragmatic manner. She has plenty of seriously bright civil servants from the Treasury advising her on the UK’S fiscal rules.
One has to ask the question. Is some of the advice inadequate or is she not listening? She must be aware that UK borrowing levels are astronomically high and unsustainable.
Since the PM’s Cabinet reshuffle or what he likes to call his ‘reset’ and I think we have had a couple of them already, it appears that growth is now the ‘buzz’ word again. The appointment of Peter Kyle as business Secretary will apparently mean dramatic cuts in regulation to stimulate economic activity. Though the paint on his name plate over his office door is hardly dry, we hear he’s off hot-foot to the US and China to drum up business and investment. I wish him well. The mood is hardly upbeat and though growth was mildly evident, it is still relatively anaemic.
Panmure Liberum’s Simon French is of the opinion that all is not lost and that the outlook for the rest of the year is moderately encouraging.
The Prime Minister also wants further planning regulations for housing to ease to enable Steve Reed, the Housing Minister, who has taken over Angela Rayner’s ambitious reins to ‘build baby, build!’ Certainly, Simon French endorses the necessity to drastically cut regulation on land availability, which is a prerequisite to give the housing market the necessary momentum it needs. However, there are still going to be issues of affordability.
Then we have Darren Jones, installed in No: 10 to be the official mouth piece for PM Starmer to get the Government’s messages across succinctly, clearly and with infectious enthusiasm. I am not sure that works. Most people believe that responsibility is synonymous with the office of Prime Minister.
These initiatives are splendid, but the Government cannot hide from the financial facts of life. The cost of running our bloated public sector is unsustainable. There are currently 9.2 million people economically inactive – that’s 21% of the population. There are also 3 million permanently sick people drawing permanent benefits. The total UK welfare spending was £303.3 billion in 2024/25, with Universal Credit costing £59.8 billion and disability benefits rising significantly. The cost will of course continue to rise. They are unsustainable.
Like many other observers, I am fearful that the Government will struggle to cut public expenditure. Labour’s left was very reluctant to cut welfare by £5 billion at the last time of asking. The 26th November is the day of reckoning. The Government’s plight could well be exacerbated by Angela Rayner no longer having a seat of political power in the Cabinet. Consequently, the left will be even keener to resist cuts. Labour needs to look over its shoulder. Reform UK is on the march. The Government needs to cut public expenditure by at least £30 billion. That now look like a pipe dream.
A reality check by the Government is necessary. Despite five cuts in interest rates, which the Government erroneously claims are down to their handling of the economy, gilt yields are higher than they were under Liz Truss’s regime.
TRUSS 2 years 3.86%, 10-years 4.01%, 30-years 4.57% - TODAY 2-years 3.93%, 10-years 4.62% 30-years 5.48%. The cost of servicing this increased level of debt is prohibitive – significantly in excess of £100 billion.
If the Chancellor is going to abide by strict fiscal rules, then there is limited scope for growth. We cannot sustain a bloated public sector at the current levels. Labour is wedded to the public sector; so any meaningful cuts on Budget Day (26th November) are unlikely. It is also unrealistic and unhelpful to bandy guestimates of a ‘Black Hole’ of circa £40 to £50 billion.
The only alternative to cuts is painful increases in taxation. Chancellor Reeves and her team, with Torsten Bell, the left-wing member for Swansea advising the Chancellor on an array of draconian hikes, currently have IHT, a wealth tax, an increase in the community charge, capital gains, a property tax and a gambling tax under consideration. Most of these taxes will have a negative effect on growth and employment, as will Angela Rayner’s Workers’ Rights Bill.
It is as well to remember that in 1997, when Ken Clarke was Chancellor the UK’s total borrowing was just £350 billion – 45.6% of GDP. In 2010, under George Osborne and post the banking crisis it was £1.2 trillion – 75.2% of GDP. Today it is £2.7 trillion – 96% of GDP. The US total borrowings are $36.2 trillion – 124% of GDP. But the US economy by comparison is huge and the Treasury market is global and very liquid. France’s debt is 114% of GDP.
The Chancellor has had a bit of luck in recent days and probably deserves it. The US economy, with worrying labour data, is starting to look a little brittle, with recession a possibility but unlikely. The Fed may cut rates next week on 17th September by 25 basis points to 4%-4.25%. Consequently, Treasury yields have fallen. The Chancellor has also been helped by France’s current financial and political debacle. President Macron’s 5th Republic, which was established by Charles de Gaulle in 1958, looks to be under the cosh.
This current economic crisis in the UK, at the moment may not have all the hallmarks of the IMF’S intervention into the UK’S finances in 1976, when interest rates rose to 13.5% in October. The UK only borrowed $3.9 billion. There was also a run on the Pound – not the case today and the cost of oil rose by 600%.
Nonetheless, the Chancellor must not hide behind the misfortunes of France and the good luck presented by US cuts in interest rates. We have a problem here in Old Blighty. The Chancellor MUST cut the bloated public sector. Failure to do so will see growth fall away and any appetite to invest in the UK could well dwindle. Confidence continues to slowly evaporate, illustrated by dispiriting comment from the British Retail Consortium. Food inflation at 5% is unhelpful.
What still seems to be missing from the Government’s plans are initiatives for growth. The only vision is one of mist and fog. Messrs Starmer, Reeves, Reynolds and Kyle keep telling investors the UK is the place to be! Really? Sir Jim Ratcliffe does not seem to think so. Where are the incentives. How about rescinding stamp duty on shares? The City has lost a bundle of companies to New York and even to Paris. Please give London’s financial services a chance to regain its position as a citadel of excellence! That would be a start.
