Labour faces inheriting worst economy ‘since Second World War’ – shadow chancellor

Labour would inherit the worst economic situation of any incoming government “since the Second World War” if the party comes into power at the next general election, the shadow chancellor has said.

Speaking with Sky News, Rachel Reeves pointed to “debt interest payments, growth, living standards and taxation” as she accused the Conservative Party of “burning the whole house down” during its time in government.

Inheritance

She told the broadcaster: “This is the worst inheritance any incoming government will have had since the Second World War in terms of debt interest payments, growth, living standards and taxation.

“(Former chancellor) George Osborne said in 2010 that they were going to fix the roof. What they’ve done is smash the windows, broken the door down and are burning the whole house down.

“That is the reality for whoever is prime minister and chancellor after the next election – that’s the inheritance that whoever forms the next government is going to have to deal with.”

Her comments come ahead of next week’s spring Budget, with Chancellor Jeremy Hunt said to be considering a squeeze on public spending plans in order to deliver tax cuts in the fiscal event on March 6.

Mr Hunt faces continued pressure from Conservatives to cut taxes when he delivers what is likely to be his final Budget before the next election, as the overall tax burden approaches record levels.

He is thought to be considering abolishing the non-dom status as a potential way of raising money which could be used to fund tax cuts, although the Chancellor – who has previously resisted scrapping the status – will hope the public finance forecasts mean the revenue-raising measure will not be necessary.

Mr Hunt will be wary of doing anything which could undermine the competitiveness of the City and has previously suggested he would rather wealthy foreigners stayed in the UK rather than going overseas to jurisdictions where they could continue to benefit from a non-dom tax regime.

Non-domiciled status allows foreign nationals who live in the UK, but are officially domiciled overseas, to avoid paying UK tax on their overseas income or capital gains – Rishi Sunak’s wife Akshata Murty has previously enjoyed non-dom status.

Tax cuts

Ms Reeves signalled she would potentially replicate any impending tax cuts, but they would need to be in line with her fiscal rules.

She said: “Fiscal responsibility is non-negotiable for me. The sums have to add up.

“Everything will be subject to the fiscal rules I’ve set out.

“I want taxes on working people to be lower. But it has to be affordable.”

If Labour does emerge victorious in the election, Ms Reeves said there would be a “relentless focus” on economic growth.

“I am not going to be able to turn everything round overnight,” she said.

“We are going to have to grow the economy. There will be a relentless focus on what we need to grow the economy.”

Labour has said it would abolish non-dom status, with the money used to pay for NHS improvements, but if Mr Hunt adopted the policy and used it to fund tax cuts it could leave Ms Reeves with another headache.

A Labour source said: “We will wait and see whether the Chancellor manages to get this past Rishi Sunak given his family finances.”