Labour’s economic plans explained as Rachel Reeves accuses government of ‘gaslighting’

Labour’s Rachel Reeves has accused the Government of “manipulating” the country on economic issues and said her party would focus on boosting growth if it wins power at the next election.

In a speech in the City of London, Rachel Reeves said her party would “expose every day what the Conservatives have done to our country” and criticised the government’s claim that the UK had “turned around”.

The shadow chancellor of the exchequer recently set out her party’s plans to fund key policies by cracking down on tax dodgers and further tightening rules on non-domiciles.

Ms Reeves says the proposed changes will enable the Labour Government to provide vital funding for the NHS, as well as funding a breakfast club policy for primary school children.

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It was the latest economic pledge by the party as it moves to detail its policy agenda ahead of elections expected in late 2024.

Last year, the shadow chancellor set out her vision of “securonomy”, in which the UK is protected from foreign pressures such as Brexit, the war in Ukraine and Covid. The approach also sees the government embracing the private sector to promote economic growth.

This is a departure from the approach of Labour under Jeremy Corbyn, which campaigned on an economic policy platform of progressive, radical tax reforms in two general elections. Ms Reeves is instead focusing on relatively small changes to start with.

The party’s current approach is more often compared by pundits to that of Tony Blair during his time as prime minister from 1997 to 2007. The former prime minister’s tax changes were seen as more restrained and generally effective in achieving a moderate redistribution of wealth.

While Sir Keir Starmer’s Labour Party has yet to publish a manifesto setting out its economic policies, Ms Reeves has revealed some key plans her party would implement if it came to power.

Here is a summary of Labour’s key economic promises:

Dealing with tax evaders

Ms Reeves says Labour’s plan to claw back money lost to tax avoidance should boost government funding by £5.1bn a year, with the shadow chancellor pointing out that in 2021/22 the gap between tax owed and what the government collected was £36bn.

The plans include increasing the number of compliance officers by up to 5,000, boosting investigations and HMRC’s capacity to combat fraud and collect tax.

“At a time when working people in the UK are being asked to pay higher taxes because of the Conservatives’ economic failures, it is wrong that a minority continue to avoid paying what they owe,” Ms Reeves said.

Tightening of regulations for non-residents

While Chancellor of the Exchequer Jeremy Hunt announced the Conservatives’ plan to end the controversial non-resident tax status in the March Spring Budget, Labour has promised to go further.

Ms Reeves said the government’s plan for non-UK residents to switch to the new system suffers from “gaps” that the Labour government would like to close. She said the proposed changes would raise £2.6bn over the next parliament, with £1bn in the first year.

“Fiscal Lockdown” for Economic Stability

One of Ms Reeves’ key economic policy measures is the introduction of a “fiscal lock”, which would provide a legal guarantee that any fiscal changes introduced by the government would be reviewed by economic experts.

This is seen as a direct response to Liz Truss’s disastrous ‘mini-budget’, which introduced radical tax-cutting measures that were very quickly reversed. The economic repercussions felt on the economy by her and then-Chancellor Kwasi Kwarteng’s fiscal event are still being felt today.

Ms Reeves said: “A Labour Government will not break the ironclad fiscal rules and play the Conservative game of undermining our economic institutions.

“We will protect the independence of the Bank of England, the OBR and our civil service.”

Keep your personal income tax and corporate income tax rates current

Sir Keir has significantly departed from Mr Corbyn’s position by announcing that he will not increase the top rate of income tax or cut corporation tax.

“We have no plans for a wealth tax,” Ms. Reeves said.

“We have no plans to raise taxes beyond what we have said. I do not see a path to prosperity through taxation. I want to grow the economy.”

The stance has drawn criticism from some quarters who had hoped that Labour under Sir Keir would introduce a policy of higher taxes for the top 5% of earners, as it was the first promise made by the leader during his 2020 election campaign.

Longer Fixed Mortgage Rates

Mr Starmer said he wants Labour to “be the party of homeowners”, promoting a vision of building 1.5 million homes and making it easier for younger generations to get mortgages.

Backing this vision with policy, Ms Reeves announced Labour’s plan to introduce 25-year fixed-rate mortgages across the UK, allowing people to secure homes with smaller deposits and lower monthly repayments.

Crucially, Ms Reeves said it was not up to taxpayers to approve lenders’ offers, but she wanted the industry to help make the changes easier.

Closing Tax Loopholes in Private Education

Labour has also pledged to close the tax loophole that allows private schools to avoid paying VAT on fees, and has set out a vision of redistributing the government funds lost in this way and putting them towards improving state schools.

But some critics say it could result in private school fees rising by 20 per cent, meaning fewer parents will be able to afford to send their children to schools.

The schools were already considered particularly hard to get to, with fees at some schools reaching £40,000. The move is likely to encourage more parents to send their children to state schools.

Investing in green initiatives – but not with £28bn

In February, Labour made a controversial U-turn when it announced it would back down from a pledge to spend £28bn a year on green initiatives, cutting the amount by almost half.

Announcing the plan in 2021, Ms Reeves pledged to become the UK’s “first green chancellor”, saying the money would go towards initiatives such as renewable energy production, home insulation and tree planting, as well as creating hundreds of jobs.

The U-turn has been criticised by environmental campaign groups, unions and some in the energy sector. Responding to the news, Paul Johnson, director of the respected Institute for Fiscal Studies, said: “What is most remarkable about this promise is not its scale or its affordability.”

“The fact is this is Labour’s only significant spending commitment.”

Defending the decision, Mr Starmer said the party needed to reassess its spending power after Liz Truss “brought the economy down” during her time as prime minister.

“Something had to change if we were to respect our fiscal rules and get to clean energy by 2030,” Ms Reeves said.