Britain's Treasury chief tries to turn on the economic optimism after months of gloomy talk

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Andrew Feinberg

White House Correspondent

British Treasury chief Rachel Reeves promised on Monday not to return to an era of public spending cuts despite the dire state of the U.K.’s national finances, as she tried to inject a dose of optimism after weeks of negative headlines for the country’s new Labour Party government.

Reeves used a speech to Labour’s annual conference to try and reassure party members, jittery despite a recent landslide election victory, that her first budget next month won’t be all doom and gloom.

Reeves promised “there will be no return to austerity” and said the government will invest in industry, infrastructure and green energy to reverse declines in “growth, productivity and family incomes.”

“My optimism for Britain burns brighter than ever,” said Reeves, the first woman to hold the 800-year-old post of Chancellor of the Exchequer.

The center-left party is gathering in the northwest England port city of Liverpool three months after winning power in Britain’s July 4 election. While Labour’s return to office after 14 years in opposition has many delegates buzzing, some are anxious about the government’s faltering start and downbeat economic messaging.

Prime Minister Keir Starmer won the election on a promise to banish years of turmoil and scandal under the Conservatives, get Britain’s sluggish economy growing and restore frayed public services such as the state-funded National Health Service.

Since then, he has struck a gloomy note, saying there is a 22 billion pound ($29 billion) “black hole” in the public finances left by the Conservative government, and warning that “things will get worse” before they get better. That has many party members worried that tax increases and spending cuts loom in the Oct. 30 budget.

"Conservative austerity was a destructive choice for our public services -– and for investment and growth too,” Reeves said about spending cuts imposed by previous governments after the 2008 global financial crisis. “We must deal with the Tory legacy and that means tough decisions. But we won’t let that dim our ambition for Britain.”

Reeves sketched out how the government hopes to fill some of the fiscal black hole without raising income tax, sales tax or corporation tax, all of which she has ruled out. Measures include a crackdown on tax avoiders and a drive to claw back money defrauded from contracts issued during the COVID-19 pandemic.

Contentiously, the government has also announced that it will save money by stripping millions of retirees of a payment intended to help heat their homes in winter.

Trade unions that are among Labour’s funders and allies hope to secure a vote among conference delegates opposing the decision to remove the winter fuel allowance, worth between 200 and 300 pounds ($262 and $393), from all but the poorest pensioners. The result would not be binding but would add to pressure on the government over the unpopular new policy.

Reeves said she knew “that not everyone in this hall or in the country” agreed with the decision on winter fuel payments. But, she said, “I judged it the right decision in the circumstances that we inherited.”

That drew one of several round of applause from hundreds of delegates in a packed hall. The crowd booed when a heckler shouting about British arms sales to Israel stood and briefly interrupted the speech.

But the government faces a tougher crowd outside the Labour conference bubble. Research released Monday by pollster Ipsos found 62% of respondents dissatisfied with the way that the government is running the country, up 14 percentage points since July, and 25% satisfied. Ipsos interviewed 1,009 adults by telephone and the margin of error is plus or minus three percentage points.

“The honeymoon is over,” said Gideon Skinner, the pollster’s head of politics research. “We shouldn’t underestimate how much concern and pessimism there is.”

The party’s mood has also been dampened by a tempest over Starmer’s acceptance of freebies at a time when millions of people are struggling with the cost of living.

Starmer insists he followed the rules when he took thousands of pounds worth of clothes and designer eyeglasses from Waheed Alli, a media entrepreneur and Labour donor. But after days of negative headlines, the party says Starmer won’t accept any more free outfits. Neither will Reeves or Deputy Prime Minister Angela Rayner, both of whom also received donations for clothing.

Starmer will try to change the subject and rally the Labour troops in his speech Tuesday at the autumn conference, a blend of pep rally, policy forum and boozy bash that plays a key role in maintaining morale among party activists.

He’ll point to the government’s early actions, including ending a wave of public-sector strikes, and plans to take public ownership of the railways, set up a state-owned green energy firm, impose tougher rules on water companies that dump sewage and strengthen rights for workers and renters.

Last year’s Labour conference fizzed with optimism, as a party that had lost four straight elections sensed power was within its grasp. If the mood this year is more muted, it will likely be more upbeat than next week’s gathering by the Conservatives, which suffered their worst-ever election defeat in July.

The Tory convention in the central England city of Birmingham will be dominated by the contest to replace former Prime Minister Rishi Sunak as party leader and internal arguments about how to chart a way back to power.