Rachel Reeves warns of impact of 'years of economic mismanagement' ahead of Budget

The chancellor has warned of the impact that “years of economic mismanagement” have had on the economy in a speech ahead of a Budget widely expected to include tax rises. 

Speaking this morning, Rachel Reeves said that since her first Budget last year, at which she announced tax rises worth £40bn, “the world has thrown even more challenges our way”, laying the ground for what is expected to be a tax-raising fiscal event later this month. 

In a Downing Street speech, she said “we will all have to contribute to that effort” of building a better country, adding that “each of us must do our bit.” 

She insisted, however, that the country would not be going back to austerity. 

Reeves refused to be drawn on specific decisions she will take later this month, saying that her speech was about setting out the context and helping people “to understand the circumstances we are facing”. 

She blamed the previous Conservative government, predicting that the UK's independent public finance watchdog, the Office for Budget Responsibility (OBR), would set out that the country's productivity performance “is weaker than previously thought”.  

Reeves pointed to the Brexit deal negotiated by the previous Tory administration, as well as the pandemic, as reasons why the economy was under pressure. 

“This isn't about relitigating old choices. It's about being honest with the people about the consequences that those choices have had. It is my job to deal with the world as we find it, not the world that I might wish it to be,” Reeves said.  

She said that while the UK has considerable economic strengths, “years of economic mismanagement have limited our country's potential, with long-term issues continually unchecked and potential unrealised.” 

The chancellor said that as decisions are made on taxes and spending, she would “do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity, and to ensure that the economy that we hand down to future generations is secure with debt under control”. 

She added that it “will be focused on getting inflation falling and creating the conditions for interest rate cuts to support economic growth and improve the cost of living” and while she understood “the urge for easy answers”, such a move would be “irresponsible”. 

“Any chancellor of any party would be standing here today facing the choices that I face,” she said. 

The speech this morning will be seen as another major indication that the government plans to raise taxes later this month, despite Reeves saying she would not come back for more after the last Budget. 

Prime Minister Keir Starmer told Labour MPs on Monday night to expect “tough but fair decisions”, arguing “it’s becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity is worse than even we feared”. 

The Resolution Foundation think tank, which has links to the Labour Party, has suggested that taking 2p off the rate of employee national insurance and adding it to income tax could raise billions of pounds. 

Responding to questions about concerns about the OBR's assessment of productivity on Tuesday, Reeves said that it is “right that we use those forecasts to underpin our economic policy”. 

“Otherwise, I'm afraid it is the road to ruin, which is the road that Liz Truss and Kwasi Kwarteng chose, which is why we still have higher borrowing costs than every other G7 economy.” 

Former chancellor Jeremy Hunt told PoliticsHome last week that doing away with the independent economic forecaster would be “shooting ourselves in the foot” and damage the country’s finances.