A drive to reduce the benefits bill will be pursued by the government alongside a charm offensive to attract more companies to invest in Britain, amid nervousness in Labour circles over a new round of spending cuts.
The chancellor, Rachel Reeves, will travel to the World Economic Forum’s annual meeting in Davos this week in the hope of convincing some of the world’s largest companies to invest, with allies saying she will use spending cuts rather than further tax increases to meet her own fiscal rules.
However, in a move that is causing nervousness among Labour MPs, a push to cut the benefits bill is also being lined up. Keir Starmer has already said the government will be “ruthless with cuts” if they are needed. Darren Jones, the chief secretary to the Treasury, is set to give a speech on the Treasury’s approach this week.
The news comes with the government backing a package designed to crack down on fraud in the benefits system, with new laws clawing back money wrongfully claimed. Officials say the drive will save £1.5bn over the next five years. Ministers said they had inherited a “broken” welfare system in which fraud and error was costing the taxpayer almost £10bn a year. “We want to spend less on welfare as a government and as a country,” said a Downing Street source. “We should want to spend less on welfare, because we should want more people in work. We want more homes built so that people spend less on housing benefits. Above all else, Rachel has been very clear we will keep within our fiscal rules.”
Reeves has been under pressure from political opponents in recent weeks as rising borrowing costs meant that public spending was becoming ever tighter before her spring budget in March. With anger among some business groups at the higher taxes she imposed on them in last year’s budget, the Treasury has made clear that reduced spending will be its preferred method of balancing the books.
There was relief in Downing Street last week as the International Monetary Fund marginally upgraded its forecast for UK growth this year. The past week has also seen a fall in borrowing costs as fears of inflation eased.
Senior government figures are now hoping that meetings with multinational companies and finance ministers in Davos this week will help them get back on track in securing the growth that Starmer has earmarked as the test of his government. They also hope to reset relations with the business world after complaints that Labour’s increase in employer national insurance and a higher minimum wage has caused them real pain.
The news also comes at a volatile time for world trade, with Donald Trump’s second presidency set to herald moves towards protectionism and tariffs. Trade experts have been warning that Britain could find itself caught in the crossfire between the US, EU and China.
However, Jonathan Reynolds, the business secretary, who will be among the UK’s Davos delegation, said Britain would be a willing champion of free trade, whoever was in the White House. He said the UK had a series of advantages that meant he could sell it as a “Goldilocks country” for companies looking for politically stable places to invest.
“The Labour party has always been an internationalist party, and it’s actually always been committed to free trade,” he told the Observer. “We are already a country that is much more globally oriented, more internationalist. But not only is free and fair trade good for the UK, it’s good for global markets. Whilst tariffs applied to any country are clearly a problem, [the cost] is paid by your own citizens … There’s significant downsides to a tariff-based approach to trade policy as well that maybe hasn’t fully come into public consciousness just yet.
“We’ve got to be explicit and say the only way to turn around the UK’s growth performance of the last 15 years is attracting greater amounts of private capital. We’ve got to be willing to go out and make the case.”
But with concerns in the party over public spending cuts, he said Britain would not return to the austerity approach of the Tories in 2010 in its search for growth.
“Having fiscal rules and market credibility are essential to any government that wants strong public services,” he said.
“That’s not what austerity is. Austerity after 2010 was an ideological project. We’ve got to be candid with people in terms of the UK’s ability to borrow more or simply to tax more – those options are limited when you’re facing these kinds of global pressures.”
Reynolds said he was not “complacent or tin-eared” about the pressures placed on companies following the budget, but said the government was now focused on making Britain an easier place in which to do business – including telling regulators to prioritise growth.
He said there was real appetite for a significant reset with the EU as part of an attempt to increase trade, short of joining its single market or customs union. “Anyone who believes we haven’t got a high level of ambition for the EU reset is misreading the situation,” he said.
Article by:Source – Michael Savage and Toby Helm
