Reeves takes comfort in the promise of future growth
The government is having a good week. The Prime Minister, in particular, has a spring in his step following his UK-EU ‘reset’ summit. Addressing MPs in the House of Commons yesterday he seemed to have grown taller. True, it only takes a glance at pictures from last week of Starmer meeting Albania’s 6ft 7in leader to put him back in context, but there’s no denying that our PM is never more comfortable than when trumpeting bilateral agreements.
Something about memoranda of understanding, clauses and joint communiqués makes him come alive in the way that grand but implausible infrastructure projects did for Boris Johnson. The act of inking a deal – of seeing agreement in black and white – clearly appeals to the lawyer in Starmer, and this confidence was on display yesterday as he batted away Kemi Badenoch’s (quite valid) concerns about the details of the EU deal in the way that an arrogant Oxford don might put a precocious undergraduate back in their place.
Foreign affairs is often where PMs go to find a win, and Starmer can point to deals with India, the US and the EU in recent weeks. His chancellor, Rachel Reeves, is also finding comfort in the promise of future growth – saying yesterday that the flurry of deals puts the UK in a better position “than any other country.” This is quite a claim, though when actual economic growth is thin on the ground the hypothetical kind becomes attractive.
Tax hikes on the cards?
Many economists have suggested that the 0.7 per cent GDP growth that emerged in the first quarter of this year could signify the high water mark for 2025. Few expect the trick to be repeated over the next four months, after which we will be perilously close to the autumn Budget and crunch time for the government’s fiscal rules.
As we report today, the expectation is that – in the absence of rocketing growth this summer – spending cuts and fresh tax rises will be called for. The exact mix of these two ingredients will be a political choice and given that ministers appear to be inching towards some kind of u-turn on cuts to the winter fuel allowance, it’s not hard to guess where the government’s instincts (and limited choices) could take it.
Having ruled out any tax hikes “on individuals” (through income or VAT) the chancellor may have to get creative if she wants her sums to add up.