UK Chancellor Reeves to detail a ‘broke and broken’ Britain

Chancellor of the Exchequer Rachel Reeves will paint a dire picture of the UK’s public finances in a speech on Monday (Jul 29) that will find her wedged between opposition parties and critics from within her own. 

Reeves will detail to the House of Commons a country that is “broke and broken”, with crises or chaos in housing, health, water, education, defence, transport and migration, according to a government statement. She will blame the previous Conservative government and “populist politics”.

The speech comes less than a month after the newly elected Labour government took power, and Reeves will be under pressure not only to set the right tone for the next five years, but to keep opponents at bay.

The new finance chief will detail everything from challenges for farming and homebuilding to waiting times for medical procedures and children persistently not attending school. But at issue is how Labour will fix the crises that Reeves is poised to say she inherited. 

During their campaign, Reeves and Prime Minister Keir Starmer repeatedly promised that they had no plans to raise taxes beyond a select few. Already their opponents are saying they will backtrack if the new leadership wants to plug what’s being reported as a £20 billion (S$34.5 billion) hole. 

Speculation is mounting that the Labour government will adjust capital gains tax (CGT) and inheritance tax. The Daily Telegraph reported that the Treasury has drawn up proposals to align CGT with income tax. 

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Changes to those taxes could raise almost £10 billion, according to a new report from the Resolution Foundation. British household wealth is estimated to be more than six times the national income, while wealth-related taxes have “barely moved”, the report said.

Environment Secretary Steve Reed, speaking on BBC television on Sunday, reiterated that there were no plans to increase taxes for “working people”. But the incoming administration wasn’t aware of the scale of the financial problem before the election, Reed said. 

He acknowledged numbers were provided in a report, yet the situation is “far worse” than Labour was led to believe. “We are going into our departments and finding additional pressures”, Reed said.

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Chancellor Reeves says she’ll fix ‘mess’ of UK public finances

While Labour commands a huge majority in parliament, Reeves and Starmer are under pressure from left-wing members of the party to spend more on public services, funded by increased taxes on the wealthy. On Tuesday, Starmer clashed with seven members of parliament who voted for an amendment calling for more generous welfare payments for parents. Starmer responded by kicking them out of the party for six months. 

Reeves will also commission a forecast by the Office for Budget Responsibility and confirm timings of the next Budget and a multi-year spending review.

“Labour is right to point out how dire its inheritance on public services is,” the Institute for Government think tank said in a report published on Jul 22. “The hard truth for Labour is that sticking to the status quo means most services are likely to be performing worse at the next election in 2028/29 than at the last election in 2019.”