Rachel Reeves’s budget contains many measures to make any social democrat cheer. Scrapping the two‑child benefit cap, putting up gambling taxes, freezing rail fares and implementing a mansion tax are not just sensible moves – they are long overdue. As is a “managed transition” for the North Sea that supports workers while pivoting to clean energy, without abruptly ditching oil and gas. The country will be a better, fairer place for these measures. They should also assuage backbench anger over self-inflicted damage by the chancellor’s proposed welfare cuts and secure Ms Reeves’s position – for now.
The dilemma at the heart of Ms Reeves’s fiscal strategy is that while individual policies may be progressive, the economic framework they sit inside is not. This is exposed by the Office for Budget Responsibility. Behind the signature policies lies a deeply conservative macro strategy. The budget will see £26bn in tax rises borne heavily by workers, falling investment, stagnant growth, flat wages and a fiscal debt rule met on a coin toss. The OBR warns that under Ms Reeves’s spending plans, unprotected services – councils, courts and police – will face Osborne-style cuts of 3.3% a year from 2029 to 2031 unless the Treasury finds £21bn extra. Her fiscal rule makes those cuts inevitable.
This is at odds with the rosy picture painted by the Treasury, which reckons cuts bring growth. Having declared growth its “central mission” it then admits GDP will inch forward at just 1.5% a year. All of this is made worse by the drag from Brexit, which continues to depress trade and investment. The glaring gap between the OBR’s pessimism and the Treasury’s optimism cannot be ignored. So in the name of “policy certainty”, Ms Reeves will cut OBR scrutiny in half by reducing checks to one a year. Nothing says stability like fewer people checking the maths.
In this budget Labour MPs get their headlines. The Treasury gets its cuts. And the public gets more stagnation. The lesson should be to change course. Both the Joseph Rowntree Foundation and the New Economics Foundation focus on fairer fiscal policies, with the latter arguing for Ms Reeves to raise capital gains tax to the same rate as income tax. If Labour wants fairness, it must properly tax wealth, not just work. Frozen fuel duty is an idea well past its sell-by date. The OBR is blunt: cut the prices the state controls, like energy bills, and inflation falls – undermining the Treasury’s story.
None of this negates the real gains for children and struggling families. These interventions matter: lifting the two-child cap will see 350,000 children pulled out of poverty. Transforming the life chances of the poorest should be the reason for a Labour government. It is welcome that ministers have recognised that rescuing public services and easing the cost of living is necessary. Whoever is chancellor in two years can accelerate this shift.
The OBR has already given the game away: Ms Reeves’s numbers imply politically impossible cuts, and Labour will inevitably spend more cash at the next spending review. The system is now engineered so that the Treasury can “find” the money by revising up growth – conveniently without the OBR around to question the sleight of hand. But perhaps this reveals what Westminster often ignores: that money is political. The state can create fiscal space whenever it chooses, and the economy will revive when it spends. Stagnation ends when the government stops starving the system.
