150. Exclusive: Rachel Reeves On Why Trump Won't Control Us

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1:13Hello and welcome to a Spring Statement special edition of The Rest is Money with me, Robert Peston. And me, Steph McGovern. Are you feeling spring-like today, having heard the Chancellor, Robert? Is there a spring in my step? Not so sure about that. There was quite a lot of sort of dire stuff that was announced today. But we are very fortunate, aren't we? Because we've got the Chancellor herself today, haven't we? Yes, we certainly have. And loads to get through. I mean, this was meant to be a non-event originally, wasn't it? It was just meant to be a kind of spring forecast. It's become a statement and now we're going to talk to the Chancellor, Rachel Reeves, all about it.

1:55Here's our interview. Chancellor, really great to see you. When you say the world has changed, that the outlook is grimmer than it was, what you mean is that Trump is reluctant to support us in a security sense and you mostly mean that his tariffs are damaging world growth, our growth. Why won't you name Trump as the culprit here? Well, Putin is the ultimate culprit for what is happening in Ukraine. It was his illegal invasion just over three years ago that started so much of this global uncertainty. But the tariffs aren't Putin's, the tariffs are Trump's. Well, no tariffs have come in yet. The OBR...

2:36Yes, they have. All over the place they've come in. The OBR are not taking into account in their forecast tariffs. So the reason for the deterioration in the public finances, the Office of Budget Responsibility say that I think around three quarters of that reflects higher borrowing costs, which obviously not something just being experienced in the UK, the same in Germany, the same in France. And you're right that Europe does need to step up in terms of defence spending to defend our continent and our values. And it's right that we do that. We've set out in a fully costed and a fully funded way the path to spend 2.5 % of GDP.

3:16And I set out today a further down payment,£2.2 billion in the next financial year, starting next month. And that by April 2027, we will achieve that 2.5 % of GDP on defence spending. But just to be clear, sorry, just on this tariffs point, if they come in, they will damage our prosperity, won't they? I believe that free and open trade is good for our prosperity and good for the prosperity of countries around the world. And we'll continue to make that case. We want to secure an economic agreement with the United States. But we also want to reset our relations with our nearest neighbours and trading partners in the European Union.

3:53And of course, there's the summit in May between the UK and the EU, where we hope to be able to make progress on making it easier, especially for small businesses, to trade across Europe once again, because we've seen a big fall in imports and exports between us and the European Union. And in the same way that I will free and fair trade with the US, I want to see more trade flows across Europe as well. Chancellor, in autumn, you talked to us about the tough decisions because of the worse than expected inheritance. Today, you know, you're blaming global uncertainty for, you know, even further tough decisions.

4:31Whether that's a fair assessment or not, it sounds like these are excuses and that you're not really in control. You know, when you look at the headroom now, yes, it's increased, but it's tiny, just shy of 10 billion. It wouldn't take much to wipe that out. Are you not worried that you are going to come back in autumn and have to tell us that we're getting more tax rises? Well, my job is to worry about making sure the sums add up. And I can assure you I do that every day. But I think what people will be able to see today is that even when economic conditions deteriorate, that I am determined to provide the stability that families and businesses and investors need, because that's the stability upon which economic growth is built.

5:15And I recognise that in the medium term, in the short term, the numbers today show the economy is likely to grow more slowly than was forecast in autumn. But next year and in every subsequent year, the growth forecasts are revised up. And in part, that reflects the decisions that we're taking as a government to get Britain building again, particularly the homes that our country need, which will contribute to economic prosperity and growth. Just on that, though, so this upgrading growth for next year is on the basis, partly on us building 1.3 million homes, more homes. But there is a huge shortage of construction workers.

5:54And I know you've committed, what is it, 600 million for 60 ,000 more construction workers. But it's going to take longer than a year to train up the construction workers. Also, there's a serious lack of teachers as well. I was in an FE college last week where they're really struggling to find the teachers to train them. So you've got to train up all the instructors and teachers, then all the people who are going to do these jobs. That's years away, isn't it? You're absolutely right that we don't have enough construction workers in the UK. And that's why last week, Bridget Phillips and the Education Secretary and me went to Bury College and met people on these courses.

6:30Now, the extraordinary thing is that the tutor at Bury College told me that some of the courses that they run in construction are two or three times oversubscribed. So there are young people desperate to do these courses. And yet we've got one in eight young people not in education, employment or training. The young people want these opportunities, but they're being denied them because places on these courses have been rationed, which is why we've announced an additional 60 ,000 places, including in some shorter apprenticeships, because we recognise the urgency of getting people into these jobs.

7:02Also, construction boot camps to support, including people who used to work in construction but aren't working in it today, to come back into the labour force so we can use their skills. And as part of the package of£600 million we announced, there are also incentives to get perhaps retired construction workers to come into colleges to teach the next generation. And when I was in Bury last week, I met a man in the carpentry school there who had worked since the 1980s on building sites. He's not able to work on construction sites now, but he's training up the next generation. And you could see the inspiration that young people took from being taught by somebody who had done these jobs for many, many years, knows what he's talking about, but also can say to the young people that if you work hard, you're never going to be out of work.

7:50You're going to have good work, paying decent wages. You're going to be able to travel anywhere in the world because these skills are very much in demand. And that's why we want to enable more young people to fulfil their potential and at the same time do something that has real pride in building something you can see at the end of it. And look, I'm sorry to slightly labour at this point, but it was only in October that you raised a record-breaking£40 billion in additional taxes. That was supposed to totally stabilise the public finances, but there has been a deterioration. Growth slowed. Interest rates are not falling at the rate that the OBR was hoping for.

8:33So you've had to make spending welfare cuts of about 15 billion pounds. People listening to this can't be confident that come the budget, you won't have to either cut more or put up taxes or some combination of the two. Because the world, as you say, is so uncertain. The world is changing and we can all see that all around us. And as a government, because of the decisions we made last October to wipe the slate clean, means that we are in a position now to be able to respond decisively to changing world circumstances, including redirecting money from overseas development assistance into defence spending.

9:12That's the right thing to do, given the threats and the challenges that we face. But one of the things which I think is... Sorry, but there could be more sacrifices, whether it comes to cuts in public spending or more taxes. that has to be possible, doesn't it? Well, what the OBR have said today is that the reforms that we made in the first week of the government to planning will increase the size of the economy, but crucially... But trivially, by 0.2%. It's trivial. It's 6.8 billion pounds by the end of this decade. And that contributes... But that's 0.2 % of GDP. I mean, the OBR itself says that is not a big upgrade.

9:53They say that. in black and white. Robert, it also means that there is£3.4 billion additional available for spending or to stabilise the public finances. And that's not trivial, because the headroom that we had to close today to get back to that£9.9 billion headroom,£3.4 billion of that was able to be found because of the stronger growth in the economy. And that 0.2 % is permanent. Actually, goes up to 0.4%. It's a permanent increase, not just a one-year growth, but a permanent higher level of potential output in our country. Sure, which is great news. We all want growth, Chancellor. We all want growth.

10:31The question is we haven't got enough of it. No, we haven't. But from next year, the OBR revise up their growth forecasts for every year for the rest of this decade. And this is the biggest scoring of a non-fiscal measure that the OBR have ever made in their 15-year history, reflecting the fact that we are making it easier to build, backing the builders, not the blockers, to get the houses built. And that is just one part of our plan for growth. We just introduced into Parliament this week the Planning and Infrastructure Bill. The OBR don't yet take account of that, but we're confident that will help build more of the infrastructure our country needs.

11:09Do you know what's a killer for the economy, though, as well, is how people are feeling. and there is already talk because of the tiny headroom and the fact you've got these ironclad fiscal rules that if you do need money come up the autumn, it's going to be tax rises. And everyone's just going to spend months speculating, aren't they? And then behaviours change. Businesses make investment decisions based on what you might do. And there's a danger that we might, with all of this, get ourselves into a state in the economy that we can't get out of. Well, what working people need to know from this government is that we've made a commitment not to increase their income tax, VAT or national insurance.

11:50But since the general election, because we've brought stability back to the economy, the Bank of England have cut interest rates three times, which puts more money in the pockets of working people, particularly if you've got a rent or mortgage to pay. Of course, we've got to do more to lift living standards. But the Office of Budget Responsibility do forecast today that by the end of this Parliament, people will be£500 better off on average compared to the plans that we inherited from the previous government. Do I want to do more? Do I want to go further and faster? Absolutely, I do. But in the first nine months, you can already see some of the plans that we've brought forward beginning to make a difference in people's lives.

12:27So, Rachel, you know that I am in the North East, right? My local food bank is seeing demand go up, contributions go down. I was in a primary school last week where two thirds of the children are on free school meals. You know, I'm visiting colleges where they're stressed about their funding and about getting the right skills. I'm talking to businesses who are worried about the increased employee costs. You always say you are going to deliver economic stability, but things feel like they're getting worse. People feel miserable. The OBR says the outlook for living standards is bleaker than it was in October.

13:03No, no, no, they don't. Just on that, that is not what the OBR say. The OBR have revised up their forecasts for family incomes. And they say that both compared to October, but also from the plans that we inherited, that things are looking up. And also the response today of business to the spring statement has been very positive. There are lots of people scaremongering that I was going to increase taxes today. I haven't increased taxes. I've cracked down on tax evasion. And we've grown public spending a little bit less fast. But business costs are going to go up come April if you are employing people who are on minimum wage.

13:40And, of course, the increase in national insurance contributions. But also there's one other absolutely directly relevant point, which is that the impact assessment of the welfare changes that you published today show that 250 ,000 vulnerable people will go into poverty, including 50 ,000 more children. Many people who voted for Labour cannot believe that a Labour government is forcing a quarter of a million people into poverty. So the OBR are really clear that those numbers, and the DWP are clear as well, that those numbers are based on not a single person moving from welfare into work. And yet we're putting in a billion pounds worth of support to get disabled people and to get young people back into work.

14:28But you can't give us the numbers of how many people. I mean, one of the things that's extraordinary is, as Kendall said a week ago, that today we would learn how many people you expect to get into work as a result of the help you're giving to disabled people with their careers, with careers planning and all the rest of it. But you haven't given us those numbers. So inevitably, people are just going to see the increase of numbers in people in poverty. Why can't you tell us how many people will get jobs? Well, it's up to the Office of Budget Responsibility to say what the costs and what the impacts of these policies are.

15:02And it's right that we don't mark our own homework. And we're now going to work intensively on making sure that this package of measures of personalised, tailored, guaranteed support for people who are on sickness and disability benefits actually works in getting them back to work. And, you know, with one in eight young people not in education, employment and training, there is a lot to go at. I don't believe that one in eight young people are not able to work or be in training. And that is what we're going to turn around because I'm not willing to write off a generation of young people and just park them on benefits without giving them the support they need.

15:37And that's the difference between what we're doing and what we inherited from the Conservative Party. I absolutely agree that we need to get more people into work and we need to help them. And, you know, that figure of one in eight young people is really frightening. But your plans to help people, which is great, and I hope it works, but it comes at the same time as you're making it harder for businesses to employ these people. You know, I am one of those businesses who employs a lot of young people. It's getting more difficult and more costly. You know, we've got the employment rights bill coming in.

16:10We've got the increase in insurance, national insurance contributions, increase in the minimum wage, which, again, I agree, you know, people should be paid a fair wage. But it is making it harder at the same time you're saying you want to get more people in there. But when people get a pay rise and three million people who are on the national living wage will get a pay rise, it means they've got more money in their pockets to spend in their local communities and to spend in their economy. And so all the evidence is that increases in the national living wage, and these are the recommendations of the Low Pay Commission do result in families being lifted out of poverty and having more money to spend in their local community.

16:48So I believe that is the right thing to do. And especially after the cost of living crisis of the last few years, it's the right thing to do. But also, most people who are on the living wage or the minimum wage are also reliant on benefits to top up their income. And I do think it is right that businesses pay people enough if they are out working every day that that they can afford to feed their families, to clothe their families and to pay the rent. And yet at the moment, too many people aren't being paid a wage that they can afford to live on. So it is right that we continue to increase that national living wage to lift people out of poverty because, of course, the majority of people who are in poverty today are actually in work.

17:25So we want more people in secure work, paying a decent wages. We are going to get rid of those exploitative zero hour contracts because if you go out to work, You shouldn't go from one week to the next not knowing how many hours you're going to get. You shouldn't go from one week to the next not knowing whether you're going to have to renegotiate your contract because of fire and rehire. So we are in changing employment practices. But I think that is fair on working people because they contribute to our country's prosperity as well. We've got way too many questions still to ask you, but let's go to a quick break first.

18:01do you understand why because of the primacy of the fiscal rules because of your own really strong commitment that you have got to be prudent when it comes to the public finances that people then do doubt that your priority as you just said it is to help the disabled into work because what What we've just seen in the last few days is the OBR saying you're not going to raise as much money as you hope to raise from the changes to how people qualify for the personal independence payment. And as a result of that, you have now frozen for longer than anybody expected the disability, the health related element of universal credit.

18:49And therefore it looks as though this whole thing, this whole exercise is about saving money and not the welfare of disabled people. Whatever the fiscal situation was, the current welfare system is not sustainable. 1 ,000 people a day are moving on to personal independence payments. It's not sustainable for the long run, but also it's not giving the support to people. There are thousands and thousands of disabled people who are desperate to work, but aren't offered the support to work. And so alongside the reforms, we're also putting money in to support people into work. And of course, that means that their families will have more money, but also contributes to the nation's finances, because people are going to be paying taxes by going out to work.

19:37So that's good for the economy, but it's good for the individual and their family as well. So, look, obviously, there's this other really important economic negotiation going on, which is with the American government. There's a deadline of April the 2nd, which is when Trump says he will impose tariffs not just on us, but on all of America's trading partners. Can you just give us a sense of whether or not you think we are now facing damaging tariffs imposed that are likely to be imposed on the 2nd of April, which is only days away? Well, President Trump is rightly concerned about what he describes, what I would describe too, as global trade imbalances.

20:19So some countries running persistent large surpluses with the US and indeed with other countries. But we're not one of those countries. We have balanced trade with the United States. We sell roughly the same to them. that we buy from them. There's not a surplus or a deficit. And I believe that free and open trade is good for countries exporting and importing. It keeps prices down and it offers new markets to businesses, big and small. And we are in discussions with the United States at the moment. We want to continue trading without the additional costs and bureaucracy and burdens that tariffs place.

20:57But let's see where we get to in the next few days. And I can't really say more than that. But just one piece of assurance, you know, which I have been deeply troubled by, and I've talked about a lot in public. You know, we as a nation absolutely value our discretion to set our own taxes in our own way. American officials have said to me that they want us to scrap the digital services tax. Just assure me as Chancellor that you will not agree to that because that would go to the heart of our tax independence. I believe that companies should pay taxes in the countries that they operate, and that will absolutely continue.

21:36And we will always set our own tax policy and our tax rates, whether that is VAT, income tax, corporation tax, or indeed a digital services tax, because a big multinational should pay tax in the companies that they operate, even if they're not headquartered there. So here you're telling American officials who want that to take a running jump, aren't you? I would not talk to anybody like that in that language. But I do think it is right that countries can set their own tax rates and their own tax policies. You remember, Robert, the digital services tax, when it was introduced by the last government, was supposed to be a temporary measure until a global compromise was reached in how to tax multinationals.

22:17So, you know, we'll continue to evolve how, you know, taxes work. But the principle that companies should pay tax in the countries that they operate in, I very much believe in. And just coming back to this country and just to wrap things up, you know, earlier on, I kind of listed, you know, the people I've been talking to in terms of how they're feeling at the moment and that sense of feeling like things are a bit miserable. when are you hoping things will feel better? Like when do you think we're not going to feel like that and this is all going to come through and we'll start to feel like living standards have raised?

22:51Well, I'm hugely optimistic about Britain's future even in the sort of challenging times that we face. Inflation, the numbers that were published today shows that inflation is down a little bit compared with the month before and wages are rising at twice the rate that prices are increasing at the moment. Now, look, you can't turn around the cost of living crisis overnight or in a few months. But over the last few months, wage growth has been outstripping the increases in prices in the shops. And that is very much welcome, as have been the cuts in interest rates. Again, not back to where they were before Liz Truss's mini budget, but at least coming in the right direction.

23:29I'm determined to bring more good jobs to Britain, whether they are in construction, defence, teaching or in our health service. There are massive opportunities and I want more people to have the opportunity to experience a good job, paying a decent wage to support themselves and their family and also to contribute to our national economy as well. So come on, here's an opportunity. Tell the OBR they're too gloomy because they are saying that next year and the year after real wages are going to fall. So tell the OBR now that you think they're being too gloomy. Well, the OBR say that real household disposable income per person is going to increase in every year.

24:03Over five years. No, no. Every year, this parliament, real household disposable income increases, and that's an improvement from the forecast that they published in October. And they also say that GDP per capita, so the amount we produce as a country per person, is going to increase by 5.6 % during the course of this parliament, whilst in the last parliament, the amount of output per person here actually fell. So there are some positive numbers in the OBR's documents today. Yeah, there are some, but there are also some negative ones. And I feel very optimistic about our country's future. we're a strong country a strong economy we can weather the challenges that we face and we can come through it stronger let's hope so i look forward to the day when we don't have to rely on the obr to tell us how we feel and we all just feel good and we don't have to look at any numbers you don't have to look at the numbers but i certainly do great thank you so much chancellor appreciate your time thank you as always great to see you bye-bye Yeah, so look, let's hope the Chancellor's optimism is well placed.

25:04I mean, one of the things that we actually didn't talk to her about today is there is a very significant shift announced today from day-to-day spending into capital spending. and basic economics would suggest that over time, not in the short term, but over time, will help with the growth rate. The other thing we didn't talk about in detail, which is also, I think, potentially positive, is the way that they are, actually, we talked about this quite a lot on the podcast recently, the way they are framing rearmament, investing in defence as a defence-based industrial policy. She used the phrase, I think, today, that she wants to make us a sort of defence industrial superpower.

25:47And given a lot of spending on defence with British companies will be in the high tech end, actually, you know, this is a more credible industrial policy than anything they've announced so far, particularly as there'll also be potentially high tech spinoffs for the civilian economy too. So her optimism isn't completely misplaced. I am very pleased there was optimism because I think for too long, there's been too much talking down of the economy and I don't think that helps anyone. I do feel slightly aggrieved that our answer to growth is coming from defence, you know, coming from preparing for wars, preparing to arm ourselves against other countries.