From Lawson to Letdown

(The Blue Corner)

Only a few weeks ago it looked like we were heading towards a Budget of generational significance, akin to Nigel Lawson in 1988. Plainly, since the triple whammy of Brexit, Covid and Ukraine, the UK’s finances need the sort of reset moment only a powerful Government with a 169 seat majority and a burning platform can deliver. Long-standing iniquities and absurdities would be remedied, barriers to investment and growth removed, and fiscal headroom would be restored to the £50bn+ levels we were used to a decade ago, insulating the country from being buffeted by every blow of the global winds.

So what do we have? Well, it’s hard to argue that this smorgasbord of tax and spending increases represents that generational reform. Rather than a few big strokes of the pen to fix the fiscal mess and give UK plc a platform for the future, we have countless smaller increases together designed to add up to enough, but each upsetting a different segment of the electorate. And with ample room for each one to unravel in the coming days and weeks.

Rather than long overdue fundamental reform of property taxes, which most agree are a barrier to productivity and labour market fluidity, we have more tinkering designed to hit “mansions” but for which the unintended consequences are so obvious it is bound to store up troubles ahead. Rather than a broadening of the tax base, we have continued efforts to squeeze ever more from the same category of people and businesses. And rather than helping business employ people after last year’s Employers NI surge, we have another de-facto tax increase via pensions reform combined with yet more above-inflation increases to the various minimum wage levels.

The “good news” the Chancellor brandished clearly represents a move from this government to the left. The two child benefit cap is not reformed, it is abolished. Rail fares are cut in real terms. Energy bills too.

Last year Rachel Reeves said the £40bn tax increase was a ‘once and once only’ moment. But today she has come back with a further £36bn increase. Whether she, and indeed this Government, can survive this now depends on whether this really is “it”. The one clear economic positive from this Budget is that the fiscal headroom has increased, from £10bn last year to £22bn now. A step in the right direction albeit a long way from the £80bn headroom in George Osborne’s last Budget day with the red box in his hands. If this headroom now means the Government can plan and act more strategically, doesn’t need to come back next year with more tax hikes, and can invest in the economy to grow then maybe – just maybe – we will look back on today as a political and economic step forward. But that feels like a very big “if” at the start of the last sentence – and the sort of generational Budget it might have been it certainly is not.

And breathe...

(The Red Corner)

Labour insiders are breathing a sigh of relief after today’s Budget. Following weeks of speculation, pitch-rolling and potentially very unpopular policies being trailed, MPs and members alike are praising Rachel Reeves’ speech in the House, and the way the final product was set out.

Looking at the Budget through the lens of Labour’s intentions tells us more about why the decisions were made and framed in the way they were this afternoon. Labour’s priority is tackling poverty and reversing the years of under-investment in public services.

Seeing the Budget in this context, it is very much set out for the families in temporary accommodation, those struggling to pay energy bills and people whose pay doesn’t add up to their outgoings. Scrapping the two-child benefit limit is a universally popular policy with Labour members. Many have been calling for this at every opportunity since the Labour government came into power. It was always going to happen, but in this Budget, Reeves set out the levers she’s pulled to deliver on the promise.

Labour insiders are also praising Reeves’ explanation of the Budget choices, with many saying it’s a welcome shift in the quality of communications. Setting out why difficult decisions – like the freezing of income tax thresholds – had to be made in order to deliver on popular policies that will move the dial for the least well off in society. Labour’s social media is leading on their line that this Budget will lift 450,000 children out of poverty, and that’s what is coming across in internal conversations too.

While there are some worries that the current plans mean tax rises in the year of the next general election, it is clear that this can be resolved with a well-timed pre-election Budget. Reeves will be hopeful that some of the changes and that all-important headroom mean that the government can invest to grow between now and 2029 and then be in a position to offer the kind of giveaways that voters look for ahead of casting their ballot.

Overall, this is a Labour Budget, delivered by a Labour Chancellor who is doing what she promised – prioritising investment in public services and reducing poverty. It may well mean a more difficult time for those with the broadest shoulders but that’s not a mistake; it’s the plan.

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