Sunday, October 13, 2024

Labour MPs urge Reeves to spend tens of billions more on ailing public services

Michael Savage Policy Editor
THE GUARDIAN
Sat 12 October 2024 

Chancellor Rachel Reeves is said to be examining an increase in employer national insurance contributions. Photograph: Murdo MacLeod/The Guardian


Scores of Labour MPs are pleading with Rachel Reeves to embrace spending tens of billions more on ailing public services as part of an increasingly wide-ranging budget that could raise tax on employers and the wealthy.

In a huge gamble that comes after a rocky first 100 days in office and a Downing Street reset, the chancellor is closely examining an increase in employer national insurance contributions that could significantly fill a black hole in public spending.

With Labour MPs desperate for the government to show that the new administration can make a tangible difference to the country before the next election, a group of about 70 supportive Labour MPs have now written to Reeves urging her to commit to a major rewriting of fiscal rules that would allow tens of billions to be poured into schools, hospitals, transport links and other crucial infrastructure.


The letter from the Labour Growth Group, seen by the Observer, warns Reeves that Labour must not repeat the mistakes of the previous Tory governments by ducking the “tough choices required to unlock investment” and encourage growth.

The group wants Reeves to follow through with a change that would see the value of new assets built with investment reflected in the calculation of Britain’s debt. The move could unlock as much as £50bn, according to the Institute for Fiscal Studies, though the figure allocated by the chancellor is likely to be markedly less than that.

“We give voice to the silent majority who benefit from economic reforms, infrastructure projects and growth, no matter how well organised the vocal minority,” writes the group, which includes influential MPs such as Josh Simons, the former head of the Labour Together thinktank, Torsten Bell, the former chief executive of the Resolution Foundation, and Chi Onwurah, the Labour chair of the science, innovation and technology committee.

“It is time to value these assets properly in our fiscal framework … Time is of the essence – the sooner we invest, the sooner our constituents will begin to benefit from that investment in their communities.

“If we delay, we risk further entrenching the barriers to growth that have held our country back for too long. We say this upcoming budget is the time to grasp the opportunity before us and act with conviction.”

While the letter from the group is a show of support from loyalists, it also reflects fears among some in Labour’s ranks that Reeves may opt for a less ambitious change such as excluding Bank of England losses from debt calculations, freeing up between £10bn and £20bn. MPs also want immediate action on investment that will deliver tangible benefits by the next election.

While some in Whitehall are concerned about frightening the markets with extra borrowing, figures close to the chancellor say that there is plenty of scope for a change and that the new rules would provide for a far more sensible amount of fiscal “headroom” that would help the government plan for the longer term.

Lucy Rigby, co-chair of the Labour Growth Group, said the government needed to “break the Tory doom loop of low investment, low productivity and low growth if we’re going to deliver the change our constituents want to see” in their communities. “There is no time to waste and that’s why we’re encouraging the chancellor today to be bold and ambitious in investing for growth in the coming budget,” she said.

Simons warned that the government’s fiscal framework had already become an “object of derision” among some economists. “It’s time we listen to them, to businesses and to investors, and make the government a serious partner for investment again,” he said.

Related: How Labour promises have left Rachel Reeves with a giant budget headache

Onwurah added: “After 14 years of Tory economic stagnation, economic growth is rightly the priority for this government – economic growth founded on a virtuous cycle of investment, innovation, productivity, good jobs and rising incomes – and that is the path toward a prosperous future that my constituents deserve, and which will put us in the forefront of the industries of the future.”

Reeves appears to be already committed to a rewriting of fiscal rules, though the final details of the budget have yet to be finalised.

In what would amount to more of a political gamble, she is considering the increase to employer national insurance.

That measure – either an increase to contributions or applying employer national insurance to pension contributions – could raise tens of billions, but will be labelled a “jobs tax” by the Conservatives

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