UK (Parliament Politics Magazine) – Former Bank of England chief Mervyn King has criticised Chancellor Rachel Reeves’ tax policies, calling her pre-election promises “irresponsible.”
The ex-central bank head blasts the chancellor’s pledges before elections and urges her to raise the income tax.
What did Mervyn King say about Rachel Reeves’ tax promises?
Lord Mervyn King, the former Bank of England governor and one-time mentor to Chancellor Rachel Reeves during her tenure, has condemned her tax commitments before the general election, labeling them “ill-advised.” He urged her to reconsider those pledges while in office.
Mr Mervyn raised concerns over the chancellor’s self-imposed fiscal restrictions and advised Ms. Reeves to revise them to permit greater borrowing and government expenditure.
He stated in an interview,
“I think it would have been better to have said in the Budget, ‘look the previous government was irresponsible in cutting employee national insurance contributions, but let’s be frank, we were pretty irresponsible in saying we wouldn’t reverse it.”
Lord King argued that reversing Jeremy Hunt’s pre-election 2p reduction in employee National Insurance would allow Ms Reeves to reconsider her employer National Insurance hike, which has unexpectedly affected organizations such as charities.
He said,
“I think it is possible to say to people, maybe we said some silly things before the election, this is the situation Britain now finds itself in and this is what we have to do in the next four to five years,”
adding,
“I think people want politicians to be honest and give them a plan.”
Mr Mervyn insisted that rolling back the national insurance would still not be enough, stating that
“in the long run, to raise enough money, I think we will have to raise the basic rate of income tax.”
He added,
“I see no harm in doing that, provided, and this is a clear condition, it is being used to finance a well thought through programme of spending.”
What did the king say about the chancellor’s fiscal policies?
While discussing Chancellor Rachel Reeves’ fiscal strategy, Lord King suggested she reconsider her strict financial policies, which bar borrowing for operational expenses and require a declining debt-to-GDP ratio.
The former Bank of England chief emphasized the need for financial flexibility, stating, “The chancellor must give herself more spending leeway.”
He said,
“The fiscal rules ought to be defined in terms of whether we think it is more likely than not that five years from now, the ratio of debt to national income will be able to fall.”
Lord king further stated,
“That would enable her to say, if we have to spend more now, and we don’t want to depress the economy in the next 12 months, we may have to borrow more in the next year, but in the rest of the parliament we will find a way in which, through raising taxes and cutting out waste we will be able to reach that target.”
What pledges did Chancellor Rachel Reeves make before the election?
During the general election campaign, Labour pledged to keep VAT and income tax unchanged. The party also maintained that it would not reverse the Conservative-led cut to employee National Insurance contributions, despite economists warning that the policy might not be fiscally sustainable.
Chancellor Rachel Reeves, in her first Budget, implemented a rise in employer National Insurance contributions, expecting to generate around £25 billion in annual revenue for the government.
What did Andy Haldane say about Rachel Reeves’ economic strategy?
Last month, another former Bank of England chief economist Andy Haldane has warned that Chancellor Rachel Reeves could be steering the economy into a “doomed loop.”
He stated that reducing investment and broader spending might push Britain into “a doomed loop between debt and growth.”
When questioned about the potential risks, Mr. Haldane emphasized that the impact depends on the scale of spending cuts, if they take place. He suggested that concerns about the economy and bond markets might be somewhat exaggerated.
He added,
“I think once we get to the second half of the year, the underlying fiscal picture may look somewhat better as might be the underlying growth picture.”