Britain’s wealthy must shoulder burden of rebuilding ‘creaky’ public services, Rachel Reeves says | Politics

Rachel Reeves has said Britain’s rich should shoulder the burden of paying for the rebuilding of Britain’s “awkward” public services, as she warned Labor MPs that leadership speculation was bad for the country.

The Chancellor said he has opted to raise taxes by £26bn in this week’s Budget to fund improvements to schools, hospitals and infrastructure, rejecting calls to “cut our cloth accordingly” after falling productivity forecasts.

However, she has been embroiled in a dispute with the Office for Budget Responsibility (OBR), which has cast doubt on claims that she abandoned plans to raise income taxes due to more optimistic forecasts. Boddy said she was well aware of the prognosis before her change of heart.

In an interview with the Guardian, Reeves defended his decision to tax and spend over the budget, saying he had made “the appropriate and necessary choice”.

She said: “I was not prepared to cut public services just because people voted for change at the election.”

Reeves said: “People often talk about what chancellors do in their budgets, but sometimes the things that are more important are the things you don’t do. One of the things I didn’t do was cut the investment I had made in capital spending, new schools and hospitals, new energy infrastructure, rail infrastructure.

“The easiest thing to do would be to say that the OBR has made this downgrade, you need to cut our cloth accordingly.

“But we’ll never get out of this problem of weak growth unless we’ve got investment in the economy, and we’ve got investment in things to boost our productivity.

“When you have dilapidated infrastructure, you are not able to achieve productivity gains. So you know, I have chosen to protect public expenditure in the Budget.”

After some tumultuous weeks, during which Labor MPs privately questioned the political future of both Reeves and Keir Starmer, he downplayed the prospect of ambitious colleagues challenging the Prime Minister.

“I don’t think it’s a mainstream thing in the parliamentary Labor Party,” he said.

“They want Kiir to succeed. They want this government to succeed. We all know what happened in the last government, when they went after the leaders and the chancellors. It was bad for the country.”

Reeves argued that whoever takes over the treasury will face similar challenges. “Whoever becomes chancellor will face instability in the global economy, and perhaps most importantly, a serious legacy.”

With taxes reaching historic highs, he declined to say whether they might rise further in the future. He denied that people of working age were being asked to bear a greater burden than pensioners.

She said, “It’s very clear that the economic burden in the Budget was not about age. It was about wealth. The people who bear the greater burden are those with larger incomes and wealth… so I don’t accept it.”

The Chancellor also rejected the idea that the government had imposed taxes to pay for benefits, although he did fund a U-turn on welfare and winter fuel cuts, and removed the two-child benefit cap at a cost of £3 billion a year.

“I don’t think there are very many people who think it’s fair that children grow up in poverty,” he said.

However, Reeves faced questions on Friday over Treasury claims there was a hole in the public finances, even though official figures showed it did not exist. Conservatives accused him of misleading the public.

Speaking before the OBR’s intervention, Reeves confirmed that the option of raising income tax rates remained on the table until he delivered a speech in the budget run-up in which he highlighted the challenges posed by the decline in productivity forecasts.

“As everyone knows, we looked at income tax and national insurance, it was a responsible thing to do, because we didn’t know the size of the downgrade, the productivity,” he said.

After the Treasury submits its most important policies to the OBR, “they update their forecasts for both growth and wages. So all those things get moved around,” he said.

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A Treasury source said: “Was it due to political pressure? The answer is no. The OBR confirmed a £16 billion loss in headroom and the Chancellor was clear on the need to increase headroom. That ambition did not change.”

Reeves said the leak of the OBR forecasts just before the Budget was “a slightly scary moment” as it could have had a significant impact on the market. “My concern was that the budget is a story as well as a set of numbers… but in the end, I think, it was OK.”

She was sitting in the Commons for PMQs when she first noticed that something was happening, with opposition MPs looking at their phones. The Chief Secretary to the Treasury, James Murray, shared the news and then passed a series of notes to officials preparing their response.

However, the Chancellor said he still had confidence in OBR chief Richard Hughes, and also defended the independent budget watchdog despite criticism from some inside the government.

“It is right that we have an independent forecaster. I do not think it would be appropriate for Treasury officials to make forecasts and formulate all the policies. That is why, when I was in opposition, and consistently during my tenure as Chancellor, I have talked about the importance of independent economic institutions.”

MPs are also concerned that the Government is abandoning a key policy that would have given workers the right to claim unfair dismissal after their first day on the job, a clear breach of the Labor Party manifesto.

Reeves denied that the move was needed to smooth over the government’s increasingly strained relationship with business following decisions on national insurance contributions and the minimum wage.

He said: “Workers’ rights are good for growth. I don’t agree with the idea that fewer rights for workers is good for our economy.”

“It was really about getting this legislation passed. We’re in this impasse right now, where this bill has been going back and forth for months, and we want to get this bill passed, otherwise no rights will be extended.”

Reeves did not reveal how the government would pay for special educational needs and disabilities (SEND) in England, after saying it would take full responsibility for the cost from councils.

But he said the reform plans, expected early next year, focus not on savings but on improving the system, amid concerns that lawmakers could resist the changes if they feel it is merely a cost-saving exercise.

“We all know in government, we all know as parents that the SEND system is not working for children, for parents, for schools. Whenever I go to schools in my constituency, they talk about how badly the system is failing people.

“So the reform is not focused on money. The reform is focused on making the system work.”