‘Reeves has made UK more vulnerable’ says economist

We spoke to the economist Rupert Harrison, who was chief of staff to former chancellor George Osborne.

He stood for the Conservatives in last year’s general election and we asked him how difficult a position Rachel Reeves is currently in.

Rupert Harrison: She is in a difficult situation because she’s caught up in a global market storm. This is, let’s be clear, this is not just about the UK. There is a global focus in markets, on inflation, particularly in the US. Their markets are worried that inflation hasn’t gone away, that Donald Trump may be about to reignite it with tariffs and tax cuts in the US. And the problem for the UK is that it has been particularly badly affected because it’s a bit like a beauty parade and the UK looks like one of the uglier countries in the beauty parade at the moment because our borrowing is very high, inflation is quite persistent and our growth is very low.

Cathy Newman: The fact that you’ve described the UK as one of the ugliest countries in the beauty parade, how much of that then is self-inflicted because of the moves that Rachel Reeves has made since Labour was elected?

Rupert Harrison: It’s partly inherited, but a large part of it is is self-inflicted. Partly it’s just after the experience of Covid and the energy crisis and the financial crisis, even many years before that. The UK is now a relatively high debt economy and so we are more vulnerable. But that is worse because at the budget, Rachel Reeves deliberately decided to borrow, not just tax an extra 40 billion a year, but to borrow an extra 30 billion a year. That was a deliberate decision. And markets are now looking at those borrowing projections and thinking that’s actually quite a lot of borrowing. And actually, we don’t really want to fund it. And you’re going to have to pay us a lot more.

Cathy Newman: The Treasury has signalled that if there are adjustments that need to be made, that would come in the form most likely of spending cuts. How do-able do you think that is, given a lot of public services look pretty threadbare already?

Rupert Harrison: There certainly is room to cut, given that the chancellor added a lot of spending at the budget. I mean, it’s embarrassing to do a budget and then a few months later have to come back and trim your numbers.

Cathy Newman: You’re very familiar with austerity, having advised George Osborne when he was chancellor. Are we looking at a new age of austerity then?

Rupert Harrison: No, we’re not, because fundamentally, public spending has been pretty much steady as a share of GDP for some time, and it’s now going to be rising strongly in real terms after the decisions in the budget to add to spending, particularly that big upfront injection into the NHS. But no, I don’t think that this is about a new era of austerity. It’s really about, were the chancellor’s decisions to deliberately go out and borrow more a sensible approach in this age where interest rates are high and rising. In effect, it’s a strategy that was born out of the last decade, where we had very low interest rates, and the ideas, I think, set in in parts of the Labour Party that borrowing was costless and we could just go out and borrow whatever we wanted. The problem is we’re not in that world anymore. We’re in a world where interest rates are high, inflation hasn’t gone away and that borrowing is just more expensive and more risky than it used to be.

Cathy Newman: We’re hearing terrible reports about the strain on the NHS at the moment. If you were in the government at the moment advising the chancellor, would you really be advising her she can’t put any more money into the NHS?

Rupert Harrison: My concern would actually be that the amount of money that’s going into the NHS right now is too front loaded and it’s going to be spent badly. So I would much prefer, from the point of view of improving productivity in the NHS, a more gradual increase, much more tied to reform. And instead we’ve seen the money before we’ve heard anything about reforms. I think that’s the problem.

Cathy Newman: The former prime minister, Liz Truss, wrote a legal letter to Keir Starmer accusing him of false and defamatory claims that she crashed the economy. Would you have advised her to keep quiet?

Rupert Harrison: I certainly would. I think that is generally the best advice to Liz Truss at all times, but particularly now. I think the rule here is if you’re in a hole, stop digging.

Cathy Newman: She says Rachel Reeves has pushed Britain to the brink of economic crisis.

Rupert Harrison: I just think that it’s about the messenger rather than the message. And I don’t think she is the most credible messenger for any message, particularly from the Conservative Party.

Cathy Newman: But would you also dispute that message that Rachel Reeves has pushed the economy to the brink?

Rupert Harrison: I think that Rachel Reeves has made the UK more vulnerable. Look, we are not in right now a full-blown economic crisis. These are market concerns. It’s a signal that we live in riskier times and the government needs to look again at its borrowing plans.