Cuts to public services would be “politically suicidal” and undermine Labour’s support, Chancellor Rachel Reeves has been warned.
John McDonnell, the former Shadow Chancellor, also suggested such a move could even drive more support to Nigel Farage’s right-wing Reform UK. His warning comes after jitters in the economic markets and Keir Starmer insisting the government would be “ruthless” in its approach to public spending.
Mr McDonnell said: “It depends on the decisions doesn’t it? If ruthless means we’re going into a round of cuts, particularly on welfare, I’m really worried.”
He added: “You would be taking demand out of the economy [with cuts] and you would be in doing that turning a crisis into a recession.”
“I think you just have to see through the turbulence that’s in the markets. In this instance we need to look to the Bank of England to intervene if necessary.”
The Labour veteran went on: “I think what has to happen here is the electorate have to be protected, otherwise I’m afraid we’re looking at a level of disillusionment which then turns people towards, unfortunately, Reform. I think that would be a disaster for the country. I think it’s important now to look at what the electoral response would be to another round of cuts.”
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Mr McDonnell, who has had the whip suspended last year for rebelling against the government over the two-child benefit limit, instead said the Treasury should instead look at increasing tax on the wealthiest. And he said there should be an “honest discussion on how we tax wealth in this country”.
He added: “That way you can overcome these problems we have in the market because we’d have a solid tax base.”
Referring to turmoil in the international markets and the imminent return of president-elect Donald Trump to the White House, he said: “There is a worldwide phenomenon here – there’s no doubt about it. But they [the markets] are picking over some of the decisions that have been made by the government.”
Mr Starmer yesterday defended the Chancellor insisting she was “doing a fantastic job” as he hit back at questions about her future.
Borrowing costs have been rising around the world – not helped by fears over Trump’s threats of massive tariffs on imports to the US – but critics have questioned whether measures in the Budget have left the UK particularly exposed.
Experts have warned the turbulence could mean Ms Reeves could be forced to make spending cuts or further tax hikes to stay within her strict fiscal rules.
The PM told reporters on Monday: “Rachel Reeves is doing a fantastic job. She has my full confidence. She has the full confidence of the entire party.” Downing Street later said Ms Reeves would remain in her role “for the whole of this Parliament”.
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