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Rachel Reeves, shadow chancellor, has claimed Labour will become “the party of long-term economic stability, of secure public finances and of economic growth”, as she tried to bury Jeremy Corbyn’s leftwing legacy.
Although Reeves promised £28bn of additional investment every year over the next decade to pay for Britain’s “green transition”, she said this could be accommodated within the party’s new borrowing rules.
Reeves’s fiscal rules — to borrow only to invest and committing to cut Britain’s debt burden — were greeted with some modest applause at Labour’s annual conference in Brighton on Monday.
The proposals are intended to prevent a return to the big unfunded spending promises of the Corbyn era; at the 2019 election the party promised, out of the blue, to spend £58bn on compensating women approaching state pension age who had been affected by rule changes.
“With me in this role, Labour won’t be making promises we can’t keep or commitments we can’t pay for,” Reeves said.
Her allies insisted that the extra “green” spending could be funded through borrowing without breaching the promise to keep debt falling as a share of gross domestic product.
Reeves also pledged to oversee “the biggest wave of insourcing” of public contracts in a generation, to address what she claimed was the “money wasted on outsourcing”.
Senior Labour officials have said Reeves was given one overarching mission by Labour leader Sir Keir Starmer when appointed to her current job in May: “He wanted her to be seen as a credible chancellor-in-waiting.”
Reeves viewed her conference speech as a crucial opportunity to introduce herself to the public and show she could be a trustworthy guardian of the public finances.
She has admitted to colleagues that some voters, to the extent they knew her at all, mistakenly believed she was not qualified to do the job of shadow chancellor. “They weren’t sure I could add up,” she has joked.
In her speech, Reeves stressed she spent “the best part of a decade” as a Bank of England economist before entering politics. She also turned down a Goldman Sachs job, recalling: “I could have been a lot richer.”
A former under-14 chess champion who read philosophy, politics and economics at Oxford university, Reeves also tried to rebuild the party’s credibility on the economy.
Although Reeves’s new fiscal rules are similar to the approach favoured by chancellor Rishi Sunak, Labour would split the tax burden in a different way. The shadow chancellor has opposed Sunak’s plan to raise national insurance contributions to fund a £12bn increase in health and social care spending.
The need to make up lost revenue by targeting the “wealthy” has led Reeves to launch a wholesale review of all tax reliefs, leaving aside a handful of totemic issues, such as zero VAT on food.
Labour has promised to target tax breaks for private schools, private equity managers, non-doms, venture capital trusts, as well as taxing income from property and share dividends more heavily.
Economists question whether the policy would raise enough money and Starmer has left open the possibility that a future Labour government could be forced to raise income tax, even if that was not its current thinking.
Reeves’s plan to scrap business rates has been welcomed by small traders on the high street, but it remains unclear how exactly she would replace the approximately £30bn the tax brings in to the Treasury each year.
She said she wanted online companies to pay more and would initially raise more money from the UK’s digital services tax, increasing the levy from 2 per cent to 12 per cent in 2022/23, pending a global deal on the issue.