It will suit partisans on both sides to play up all the ways in which today’s Budget is different from a hypothetical Conservative one, but it revealed yet another way in which Rachel Reeves and Jeremy Hunt are very much alike: they both ask voters to believe that they will have more stomach for difficult decisions tomorrow than they do today.
Last year, Hunt told younger voters to back the Tories because they had time enough to wait for the ‘long run’, a hypothetical point when government would stop bribing Boomers and take their concerns seriously. Reeves is not quite so explicit, but the fundamentals are the same.
For example, she says she won’t extend the freeze on income tax thresholds beyond the 2028/29 deadline she inherited from the Tories. There’s some political logic to this (it would mean an end to de facto tax rises just before an election), but to believe it, you need to think the Chancellor will be in a position to forgo raising a lot of revenue from stealth taxes in just a few years’ time.
A glance at the forward projections of Britain’s major spending budgets – the NHS, social care, and pensions – in the face of an ageing population should put paid to any such delusions. At least in the absence of strong and sustained real growth (that is, GDP per capita, productivity, and real wages), which Labour show no sign of having the first idea how to unlock.
Or if looking up that background data is too much work, one can simply consider the rest of the Budget. Reeves has heavily front-loaded her investment plans, with lots of spending this year, some next, and then very little in the rest of the Parliament.
Do we really suppose she is going to take to the despatch box for several years and announce nothing, with an election looming and pressure mounting from restive backbenchers with narrow majorities?
After all, there won’t be growth. The Office for Budget Responsibility – in addition to scotching Labour’s claims about that £22bn black hole in the public finances – forecasts that overall, today’s measures will juice the economy in the short term, via state spending, but at the cost of crowding out public investment.
Meanwhile, public spending, taxation, inflation, borrowing and borrowing costs all end up higher, while business profits (the thing you need to invest in productivity and real growth) will be down. The Institute for Fiscal Studies adds that Reeves’ hike to employers’ National Insurance will suppress private sector wages, especially for low-wage owners (and freelancers who operate a company).
All this at the same time as the Government is handing out handsome public-sector wage settlements, which are a permanent increase in revenue costs without any attendant improvements in productivity or service.
Politically, Labour walked straight into a trap set by Hunt when it ruled out increasing any of the major revenue taxes (income tax, VAT, and national insurance) during or before the election campaign. But while that might have made life easier for Reeves in the short term, it would only have accelerated this country’s slide down the doom spiral it currently finds itself in.
Britain’s deluded politics are downstream of a deluded public. This country simply doesn’t realise how poor it is; the gulf between public expectations of the state and the state’s means of financing itself has widened to dangerous levels. People on relatively high incomes don’t feel rich and therefore assume that there are plenty of actually rich people who could be squeezed to pay for stuff.
Entitlement spending, in particular, is eating British democracy alive. Council budgets are increasingly consumed by social care and special educational needs and disabilities (SEND) spending, with services cut to the bone. Meanwhile in Westminster, successive governments continually forestall capital investment to avoid tinkering with absurd commitments such as the pension triple lock.
The result is that the share of public budgets actually under the discretionary control of politicians (and thus, in a sense, at stake in an election) has shrivelled. This is especially obvious at the centre, where each party has been reduced to trying to create illusions of the substantive programmes of earlier generations: the Conservatives pretend targeted exemptions from vast stealth tax increases are ‘tax cuts’, while Labour pretend that allowing passenger rail franchises to lapse is ‘nationalising the railways’.
As a result, and whoever is in power, ministers are reduced to sucking more and more juice out of the economy in order to keep the whole rickety show on the road for another few years: more taxes on working people to fund entitlements for pensioners, and more immigration to create nominal GDP growth and create a bit of short-term revenue, whatever the long-term costs.
Even then, the window of what they can keep on the road is narrowing. There was nothing for criminal justice in the Budget, despite our courts system being so riddled with backlogs (and lack of prison capacity) as to be almost non-functional. As time goes on, the list of similar things – which previous generations would have viewed as the core functions of the state – that have to be left to wither for the sake of protecting entitlement spending will increase.
Again, politicians can only bear so much blame for this. As we saw at the 2017 election, there is no political space for our leaders to be frank with the public, especially about the need for wealthy older voters to pay for things. It would take both political parties fighting the election on similarly dour platforms – and then the Liberal Democrats not shamelessly exploiting that.
It took the ‘Winter of Discontent’ to create said space for Margaret Thatcher to start taking apart the post-war settlement. Whether such an acute crisis will happen this time remains to be seen; with so many voters insulated from the effects of the housing crisis and stagnant wages, it may be decades yet.
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