Imagine it: you are the chancellor of a government in mortal peril. Poll ratings are down the U-bend; backbenchers are mutinous and colleagues are circling around the prime minister, readying themselves to land the fatal blow. You have a budget, which may be your last chance to avert the inevitable. What do you do?
If you’re Rachel Reeves, you use it to buy time. Time for Keir Starmer and you to carry on in office for a while longer, so perhaps your luck will change. Extra time for this unfortunate, empty, placeholder of a PM costs more than olive oil, but the chancellor still splashed out. This afternoon, she delivered a budget that was a £26bn attempt to buy her government some time.
That £26bn will be paid not by businesses but by you and me, as taxes are pushed up to an all-time high. She will spend the cash to placate bond investors and calm down angry backbenchers by increasing the “headroom” to meet her own fiscal rules, and on measures such as scrapping the two-child benefit cap. And it will work, for a while. But even while many of those moves are good, they are small. Bundle up all the spending and tax policies and the budget is huge, but look at the measures one by one and they are mainly loose change. You can say the same about the likely impact of this budget.
A little breather, yes – enough for this historically unpopular pair to stay in Downing Street a while longer. But a gamechanger? No. When the public judge Starmer and Reeves as worse than the calamity couple of Liz Truss and Kwasi Kwarteng, then however unfair the situation, it’s beyond saving.
Such desperation has marked this budget from the start, through all the leaks and bungling. A “circus” is how the Bank of England’s former chief economist Andy Haldane describes it – and that was before some poor sod at the Office for Budget Responsibility (OBR) had an off-day. Except circuses are meant to be fun. All this speculation has achieved has been to put businesses off investing and crushed growth, as even the Bank murmurs discreetly in its latest monetary policy report.
Governments use budgets to set an agenda, tell a story, pick a side. Remember Gordon Brown and his crusade to end child poverty, which he very nearly won. Think of George Osborne and his drive to squeeze public services and social security. Years before he brought in the loathsome child-benefit cap, David Cameron was arguing for it. Then look at our first female chancellor, obviously gifted and Labour to her fingertips, but unable to show us why. Why she’s in No 11, what she wants to do with power, or even with this budget.
The brutal truth, as the Joseph Rowntree Foundation observes, is that the vast majority of the taxes raised today will go on padding out the margin to meet her fiscal rules. Another slug will be spent on paying for all those U-turns forced on Reeves and Starmer. Only 20% will go on new measures “actually making people better off”.
What a way to waste a landslide majority. Small measures to improve voters’ lives – cutting energy bills, freezing train fares and prescription charges – will barely be noticed against a backdrop of rising bills (especially for food) and flat wages. Almost a million workers will be dragged into the 40% higher tax band by the end of this year, even while public services continue to struggle. For all the extra billions that have gone to Wes Streeting, it’s not enough to make up the lag at the NHS: 22% of patients wait more than six weeks for diagnostic tests, MPs reported recently. The standard is meant to be 1%. The MPs expressed “significant concerns” that the shake-up of NHS England “has been announced without either delivery plans or funding in place”.
If you are already worrying about the prospect of 2029 bringing Nigel Farage into No 10, then look at the finding from the OBR on how household take-home pay will rise over the rest of this decade. Because it will barely rise at all: just 0.25% a year every year until the general election. That is what a cost of living crisis looks like – but it’s also how a political breakdown takes hold. It’s well down even on the 2010s, the rage-filled decade that gave us Brexit.
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In her eagerness to become Labour’s first chancellor in 15 years, Reeves made three big offers. To gee up the Labour base, she promised an end to austerity. To win over Tories, she pledged that none of the big three taxes would go up. And to make peace with financial markets, she tied herself up with fiscal rules that are simply too tight. As I and a few others argued at the time, these three goals are incompatible. To deliver capital-C change you need to raise revenue or borrow. Most of all, you need to level with voters and tell them that without this money, their kids’ classrooms will continue to leak and their parents will wait for ever to get their cataracts done. Labour never came clean. It blustered about growth, then broke its manifesto promise by hitting employers with a rise in national insurance. Wednesday’s big stealth rise in taxes breaks its promises again.
And for what? To save its skin. The very regime adopted by Reeves to ensure stability – relying on the OBR despite poor forecasts and productivity downgrades, tying herself into tight fiscal rules – is a large part of why this government is so unstable. And Westminster turbulence will roil financial markets. Asset managers are already sending out slide decks giving their views on which of the possible replacements for Starmer in No 10 will be best for gilt investors. Andy Burnham, who warned of a government “in hock” to bond markets, is not viewed too highly, you won’t be surprised to learn. Rather more sobering is the implication that financial markets, while paying no party subs and wielding no votes, will have a say in choosing this country’s next prime minister.
But all that is not a question for this week – and for that Starmer should thank Reeves, who has probably done enough to stave off an imminent collapse. For now.
You can call this budget The One Where Rachel Buys Time but, as the old song goes, it’s always later than you think. I’ll be around for years and years, Reeves told Labour MPs this week. But she knows they’re measuring out the rest of her term, and that of her boss next door, in weeks and months.
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