Chancellor of the Exchequer Rachel Reeves vows that “there will be no return to austerity” in the UK under the Labour government.

She says her plan for Britain’s growth is to “unlock investments” and bring prosperity back to the country.

We speak to her about the UK economy, austerity, the NHS and gifts to Labour cabinet members.

Krishnan Guru-Murthy: There’s a clear change of tone at conference, that the doom and gloom is sort of giving away to a bit more of the future. How happy and optimistic are you feeling now?

Rachel Reeves: I’ve never been more optimistic about our country’s future and our country’s prospects. We have fantastic businesses, entrepreneurs, working people who work hard and want to get on in life. The last few years, instability and chaos has held back our country. But now we are returning stability to our public finances, and we’re making the pro-business, pro-growth reforms to unlock investment, which is the lifeblood of a successful growing economy.

Krishnan Guru-Murthy: Did you think you may have overdone the doom and gloom? You’ve depressed people and they’re scared about what taxes might go up, so they’re not spending.

Rachel Reeves: I had a choice to make when I learned of the inheritance and the £22 billion black hole in the public finances. I could have either continued with the Conservative approach of covering that up or I could have been honest and transparent with people about the scale of the challenge and how the path ahead is harder and steeper than we could have envisaged on 4 July. I thought it was right to be open and honest, but also set out a path to bring stability back to the public finances and stability, in the end, is the foundation stone for a successful economy. But coupled with reform, I know we can bring that investment back to Britain to grow our economy, to improve living standards and bring good jobs, paying decent wages, right across our country.

Plan for growth

Krishnan Guru-Murthy: So let’s look at your growth strategy, what is your plan for growth?

Rachel Reeves: Our plan for growth is to unlock investment. We are the only G20 economy with investment of less than 20 per cent of GDP. We need to boost investment, both public and private. The Treasury that I now run needs to take into account the benefits, not just the costs, of investment, and we need to leverage in that private sector investment. That’s why, for example, we’ve created a National Wealth Fund to invest in some of the jobs and industries of the future. It’s why we’re reforming the pension system and it’s why we are overhauling the planning system to get Britain building again.

Krishnan Guru-Murthy: So what are those measures going to yield? You must have done the modelling, how much is reforming planning going to add to growth?

Rachel Reeves: The Office of Budget Responsibility will be the arbiter of the growth impact. But if you add these things up together, if you can bring the investment in, we are doing the things that businesses have said to us will boost investment and we’ll set out more detail of that in the budget and the spending review. But already we have called in planning decisions around onshore wind, housing and data centres to unlock the private investment that wants to come to Britain, but for too long has been held back by a bureaucratic and sclerotic planning system. And our National Wealth Fund, £7.3 billion endowment, to help bring in private sector investment in sectors like…

Krishnan Guru-Murthy: How much growth will the National Wealth Fund deliver?

Rachel Reeves: You add it all up, and we’ll set out in the Office of Budget Responsibility the impact of these changes. But I’m confident if we listen to business, as we are doing, and we make the reforms that they say are necessary to unlock investment, then we can grow our economy and bring that prosperity back to our country.

Krishnan Guru-Murthy: You’re under pressure from various economists, Mariana Mazzucato, Mohamed El-Erian, even Gus O’Donnell, the former cabinet secretary, signed a letter this week calling on you to change the fiscal rules, the borrowing rules, so that you can increase public investments. Are you looking at that at least?

Rachel Reeves: Our rules are already different from the ones we inherited from the Conservatives. So our two rules is that we will balance day to day spending with tax receipts and we will bring debt down as a share of our economy. But the previous government treated capital spending and day to day spending the same. That’s not right.

Krishnan Guru-Murthy: But it’s the second one, isn’t it, that is a limit on investment. Now, are you looking at whether you can change that to increase public investment, as many people want?

Rachel Reeves: Our rules do treat capital investment and day to day spending separately. We’ll balance day to day spending with receipts, but that can help unlock that space for government investment to leverage in private investment. The previous government met their fiscal rules by cutting investment in the economy. And the problem is that made it harder to achieve growth, which is why that prize of growth has eluded us for so long. I’m not going to make those same mistakes. We will make sure that we keep that space for investment in infrastructure to leverage in the private sector investment that we need to grow our economy.

‘No austerity under Labour’

Krishnan Guru-Murthy: You’re going to need quite a lot of growth to deliver on your promise of no austerity, aren’t you? What does no austerity mean? Does it mean that no government department will face any cuts?

Rachel Reeves: What we need is a combination of money for our public services and reform of our public services. We need to be better using technology and data to run more personalised public services. We need to be getting a grip of things like fraud and error, both in our tax system and in our welfare system. So it’s not just about the amount of money that we’re spending, but also how we run our public services differently. But there will be no return…

Krishnan Guru-Murthy: But austerity does mean cuts, doesn’t it? And you’re saying no cuts?

Rachel Reeves: There will be no return to austerity under this Labour government. Austerity was incredibly damaging for public services, yes, but also for our economic prospects because it chokes off the growth that is necessary to improve living standards and bring businesses to Britain so there’ll be no return to austerity. But we’ve got to grow our economy if we’re going to be able to realise that potential.

Krishnan Guru-Murthy: But I’ve been asking you about this since you were in opposition. Does this include departments like justice, which are unprotected at the moment, which are cut to the bone, facing real problems in prisons, and at the moment are looking at real terms cuts? Can you say that they will not face any cuts, and all the unprotected departments will be in the same position?

Rachel Reeves: We will set ourselves the allocations in the spending review. We are doing the one year, for next financial year, in October and then two further years in the spring next year.

Krishnan Guru-Murthy: But if you say no austerity, that’s surely what it means.

Rachel Reeves: There will be no real-terms cuts to government spending. Of course, we’ll have to make those allocations department by department. But if you take justice, for example, one of the biggest challenges there is ensuring that we build the prisons and the prison spaces. The previous government got us into a position where there were no prison spaces, virtually, left in the system, which meant that we had to make difficult decisions around prisoner release schemes. We need to build those prisons, build that capacity, as well as making sure that we are investing in rehabilitation so people don’t just go through a revolving door in and out of prisons. So that’s the reform we need to make, the capital investment that we need to make, alongside the money that is needed to run good and functioning public services.

Krishnan Guru-Murthy: Obviously, your tax measures will come in the budget and that’s what everyone’s waiting for. But as a principle, what do you think about hypothecated taxes? The NHS is clearly in a lot of trouble. A lot of people want it to have more money. What do you think about the idea of saying ‘this tax, whether it’s on rich people or whoever, it is for the NHS’?

Rachel Reeves: There’s a whole number of public services that are on their knees after 14 years of Conservative government. But the NHS is particularly acutely affected and the focus of the budget in October will be to protect living standards of ordinary working people, begin to fix the crisis in our National Health Service and then rebuild the foundations of our economy to unlock that investment that we need to grow our economy, so that we are not in this difficult situation of trying to balance spending and tax receipts because of this failure to get the investment and the growth that’s necessary.

Freebies row

Krishnan Guru-Murthy: Just finally, I’ve watched you do sort of various interviews this morning and everybody’s been asking you about the donors row. That must be very annoying for you, that you’re in this position where you’re at your first Labour conference, you want to trumpet the economy and your plans, and you’re facing annoying questions about who paid for your suit.

Rachel Reeves: It’s understandable that with this level of responsibility also comes scrutiny, and of course we should be asked questions and our expenses should be scrutinised. When I was shadow chancellor in opposition, I had a good friend who wanted to support me by helping me buy the clothes for the campaign and for big events. I can understand that that seems odd to some people. It’s not a practice that I plan to continue in government because I think it’s important…

Krishnan Guru-Murthy: Did you check with Sue Gray that it was okay?

Rachel Reeves: We checked with the registrar for declaring all donations. That’s what I always do with donations, whether it is for support with speechwriting or research in my office. In opposition, we needed to raise funds to be able to do our job. We’re now in government. Higher standards rightly apply to government ministers, particularly because of conflicts of interest and I will hold myself to the highest standards.