It saddens those of us who waited so long to see the back of the last lot that the new government has been so inept in its first 100 days. And it is particularly distressing that, while one hopes one’s criticisms are constructive and made with the best of intentions, the Starmer government has been such easy meat for the rightwing press.
It was the economist James Ball who used to say: beware of the OBE. He was not referring to the Order of the British Empire: those initials stood for One Big Explanation. For Keir Starmer, and Rachel Reeves, the one big explanation for their troubles is “the inheritance” – far worse than they expected.
The pressing preoccupation of recent comment on the economy has been “how will they deal with it?”, with so much – perhaps too much – weight being placed on the importance of Wednesday’s budget.
But the inheritance is not the only explanation of their problems. Thanks to her manifesto commitments, Chancellor Reeves has approached this overhyped budget with one hand tied behind her back.
We need some historical background here. The fact of the matter is that Labour entered the campaign still recovering from the memory of the lost election of 1992.
As I have said before, that loss was a real shock: the day before the vote, the bookmakers at Ascot were offering 6-1 against the Tories. To my mind, Labour lost on account of the brilliant campaign run by the then Tory party chair, Chris (now Lord) Patten. He may have lost his own seat in Bath, but he helped John Major to win the election with his astute propaganda about Labour’s “tax bombshell” – much repeated by the predominantly Tory press.
What Labour’s shadow chancellor, John Smith, was trying to do was promise some socially desirable increases in public spending, but assuring the electorate that these would be financed by increases in taxation – a difference of approach from the short-lived Liz Truss-Kwasi Kwarteng budget of 2022, where there was no attempt to prove that their plans were financeable.
My strong impression is that Starmer and Reeves are haunted by the folk memory of the 1992 experience – even though they were nowhere near the political scene at the time – and, more recently, by the reaction of the financial markets to the Truss-Kwarteng fiasco.
A sensible response to this would have been to enter this year’s election campaign with a manifesto that emphasised the scale of the problems they expected to inherit if they won, but which did not commit them to a specific plans for taxation. Instead they rashly, indeed stupidly, promised not to increase the principal rates of taxation on the three taxes which between them account for more than three-quarters of government revenues – namely income tax, national insurance and VAT.
Their justification was their desire to win the election at all costs without upsetting the electorate. But they didn’t need to do that. This year’s election was a bit like the one in 1997, won so resoundingly by Tony Blair. (I think Kenneth Clarke, Tory chancellor 1993-97, said something like “a monkey could have won the 1997 election”.) It was obvious that the mood of the country was to throw the Conservative government out; and so it did. But now Labour is landed with those rash commitments not to increase the rates of the principal revenue-raisers.
Now, although many commentators, including myself, have tired of the way Reeves has gone on about “the inheritance”, the fact is that the budgetary statistics are indeed far worse than expected – although not nearly as bad as the ones Chancellor Denis Healey inherited in 1974, or, for that matter, what the Attlee government had to cope with in 1945.
The result is that, in approaching this budget, the chancellor has fallen between a number of fiscal stools. True, it looks as though she is going to be more longsighted in her approach to borrowing for investment. But by ruling out the principal areas for raising tax rates, she looks like offending many people and investors unnecessarily – investors she is also trying to woo!
In my opinion it would have been wiser to use her horror at the state of the books as an excuse to break the pre-election commitment on tax rates. But there it is. She is hoist with her own petard.
Finally – I know you have been waiting for this – we come to the self-harm of Brexit, and the prime minister and chancellor’s obstinate resistance to applying to rejoin the single market and customs union.
Investment, investment, investment; growth, growth, growth are the chants. Yet the thinktank UK in a Changing Europe calculates that we have potentially lost up to £44bn of investment as a consequence of our exclusion from membership of the European Investment Bank.
