Anneliese Dodds has argued that the government should have a “relentless focus” on jobs and growth and said questions such as whether to raise taxes are “second order” while the economy is still locked down and unable to operate.
During an ‘in conversation with’ event with think tank Reform this morning, the Shadow Chancellor told those watching that Rishi Sunak should not be focusing on fiscal consolidation at this stage in the economic recovery.
“I don’t think that the Chancellor’s focus should be on that consolidation immediately,” Dodds said. “And yet that is what we’re seeing. Particularly with that council tax increase and with those reductions in public services spend.
“I just think that’s out of kilter with where we need to get to in terms of promoting the growth that ultimately – obviously dependent on the interest rates environment – but that ultimately would erode the value of the debt,” she argued.
“We can’t count on it, and we mustn’t count on it. But surely that growth is a precondition to us getting to those more stable public finances in the first place.”
She added that it would be “necessary to look particularly at the revenue system overall” if the interest rates environment were to change. The current interest rate set by the Bank of England is 0.1%.
She emphasised that now is the time to “signal the kind of country we want to be” as the UK emerges from the coronavirus pandemic and told attendees at the virtual event that the government has “too low ambition”.
“We feel we have too low ambition here from government,” Dodds said. “Low growth also, unfortunately. And a fiscal consolidation ultimately that will be hitting families and key workers in their pockets.”
Dodds criticised the Conservative management of the economy over the past ten years, and said the Budget should have been an opportunity to “set our public services on the road to recovery” but highlighted that day-to-day spending will fall.
She stressed the need for the government to have a “longer-term perspective” on public finances, arguing that the country was not in a good position when the pandemic hit as a result of a “misunderstanding about the drivers of cost”.
Citing housing-related costs related to the social security system as an example, she said that the government would have been able to reduce those costs through a “focus on genuinely affordable supply including social housing”.
The Shadow Chancellor also highlighted capital spending, describing a “really severe impact of backlogs that have built up” in the NHS but also in the justice system with court buildings unfit for use due to their condition.
Dodds said the government had announced “handbrake” turns on investment at the last general election but argued such reactive decisions are “not the way to ultimately be delivering that more resilient set of public finances”.
She warned against the Universal Credit cut that is due to now take place in the autumn, and the increase in council tax. She explained that it will hit household spending at a time “when our economy will be building back up”.
“This really is not the approach to be taking because yes we do need to ensure we have those robust finances in the future and particularly if the interest rates environment changes – as you say, we will need to ensure we’re ready for that…
“But actually reducing the strength of our recovery through some of these hits to household finances will simply make that task harder if we need to be engaging in that strong consolidation into the future.”
Asked when a Labour government would start to focus on fiscal consolidation and what that would involve, Dodds emphasised the need to look at areas where reform is “necessary and obvious” such as on council tax and business rates.
“But really right now the relentless focus must be on jobs and growth. It must be. And yet we do not see that taking place currently,” she told those watching.
She also criticised the 1% pay rise proposed by Sunak for health service staff earlier this month. “Instead of rewarding all NHS workers with the fair pay rise they deserved, the Chancellor hit them with a real-terms pay cut,” Dodds said.
“Labour won’t stand for this shabby treatment of our Covid heroes, so we will use every parliamentary opportunity to force the Conservatives to reverse this insult.
“When Labour clapped for our carers during the pandemic, we meant it. That’s why we won’t rest until all our brave NHS staff get the fair, long-term, pay settlement they deserve.”
Asked about Labour’s position on the personal income tax threshold freeze, she said: “We don’t believe that government should be imposing that change, as I said before, before it’s having that change in corporation tax rates.”
The Chancellor announced in the Budget earlier this month that the amount of money you can earn tax-free will increase from £12,500 to £12,570 in April as planned, but will then remain at that level until 2026.
Dodds initially said following the statement that Labour did not oppose the move that will see 1.3 million more of the lowest earners paying income tax, but the party later revealed that it would vote against the allowance freeze.
She told those watching the livestreamed event today: “Labour said we wouldn’t rule out different measures for the future but actually the timing of this is something that I’ve repeatedly expressed concerns about.”
Challenged on whether she supports a Covid windfall tax on companies that have profited during the pandemic, she stressed the need for the government to take a more targeted approach to support schemes.
She highlighted the example of the Welsh Labor government, where the administration had removed support for the very biggest essential retailers to free up funding for more targeted support for small high street businesses.