Welcome to the 1970s
Starmer pretended to be Tony Blair when he’s really Harold Wilson
Rachel Reeves's Budget was music to the ears of the left. Just listen to it: businessmen in tears over National Insurance; Jeremy Clarkson whining about farmers being hit by inheritance tax; well-off boomers claiming their pensions are being confiscated; private schools threatening legal action against the VAT increase. The only plutocrats not screaming are the non-doms, the foreign-born capitalists, probably because most of them have either already left or are packing their bags. It may not be actual class war, but it is a war on wealth and the creators of wealth.
Indeed, it was the kind of budget that Jeremy Corbyn’s Shadow Chancellor, John McDonnell, might have delivered. It was rather brilliant of Sir Keir Starmer to fool everybody into thinking that he was a Blairite when he was really Harold Wilson—or even Tony Benn, who wanted to stay out of Europe too, remember, and boost spending. Ms Reeves didn’t pin that portrait of one of the founders of the Communist Party of Great Britain on her wall for nothing.
OK—let’s not get carried away. She wasn’t announcing the nationalisation of the top 200 companies or punitive top rates of income tax. This wasn’t a full-blooded Marxist programme by any means. But it was an old-fashioned tax-and-spend budget, redolent of the 1970s, the kind that the former Labour Chancellor Denis Healey might have introduced.
£40 billion in tax increases is big money for a modern budget. £70 billion in increased spending is a big number too. The budget was big on borrowing also, as Reeves fiddled the figures to yield another £40 billion or so to fall from the magic money tree. Who said Modern Monetary Theory died during Covid? UK public debt will be a whisker under 100% of GDP. It’s all set out in the forecasts of the Office for Budget Responsibility (along with the inconvenient bombshell that growth will actually be lower than it would have been under the Tories, and inflation higher). The government will be spending over £100bn on debt interest payments—that’s more than on education and defence. Big is back.
But Reeves’s first outing was, on the politics, a rather astute budget, one Gordon Brown would have approved of. It was full of stealth taxes and fiddly changes that only accountants fully understand. We can quibble about definitions, but Keir Starmer broadly kept his promise to working people that they would see no tax or NI rises in their payslips. On the contrary, those on the minimum wage will see a grand or more in their pay packets next year. And since that will push up wages further up the salary scale to maintain differentials, this will probably be a boost to the pay of most working people. All those junior management types in the public sector will get a windfall without even having to threaten to strike.
Of course, in the longer term, this budget may lead to lower pay rises as firms try to cope with the huge increase in employers' National Insurance on top of the new living wage. But if anyone, it’s the bosses who’ll be blamed for that, not the government. There may be fewer jobs created in future for the same reasons. But that is a negative impact below the level of political visibility.
The left and the SNP still have things to complain about, of course. She didn’t lift the two-child benefit cap or give in to the Waspi women or address other current grievances. There was no hint of restoring winter fuel allowances to pensioners. Nothing on cutting arms sales to Israel. Charities are furious that they will be hit by the increase in employers' National Insurance.
Plus, of course, everyone in the NHS and the public sector generally is clearing their throats before declaring that “it’s not nearly enough…too little too late…a lost opportunity to restore the damage to public services.” But the SNP and the Greens can hardly complain that this is a “Red Tory” government promoting austerity—not that it’ll stop them doing precisely that. Nor will the Green Party be slow in accusing Ms Reeves of failing to address the greatest crisis of all: climate change. Her announcement of more cash for carbon capture is regarded by most environmentalists as tantamount to subsidising the fossil fuel industry. And Extinction Rebellion is furious that she didn’t abolish the cap on fuel duties.
But what is unavoidably the case is that Reeves has moved the UK firmly down the road to the European social model of high spending and taxation. She has raised taxes to their highest level outside wartime—38% of GDP. The share of national income consumed by the state is now 45%. In other words, the state is now running half the economy. Billions have been handed to powerful trade unions—that’s what accounted for much of the £20 billion “black hole” that she claims the Tories kept secret.
£22 billion is being pumped into the bloodstream of the NHS without any upfront commitment to increased productivity. A triumph of hope over experience, if ever there was one. That money will largely disappear, as it has in the past, into wages. The NHS is one of the world’s biggest employers, with 1.5 million workers—a number that has increased by 30% in little over a decade—that’s nearly half a million people. No wonder health accounts for 40% of all departmental spending.
Of course, the budget was a massive repudiation of everything Labour promised before the general election. They said everything was “fully costed” and that abolishing non-domiciled status for foreign-born workers and ending VAT relief on private schools would pay for everything in their programme. That was nonsense. They have opened the spending taps and ramped up taxes as we always knew they would. Dogs bark, cats miaow, and Labour puts up taxes. Rishi Sunak was almost speechless with rage in his response to the government’s address, insisting, with some justification, that Labour had “lied.” Rachel Reeves just gave him her dead-eyed stare. Of course, they didn’t tell the truth—people might not have voted for them if they had. Anyway, it’s only Tories that lie—everyone knows that. Labour simply claims they didn’t know how bad things were. Not their fault.
Labour doesn’t do lies—it is just economical with the truth. And for the time being, people will give them the benefit of the doubt. Even though there’s a hell of a lot of doubt to be benefited. As well as promising no more taxes, Labour ministers insisted that their economic policy was all about economic growth, growth, growth. They always say these things three times since the days of Tony Blair’s “education, education, education.” But no matter how many times you say it, this is NOT a growth budget. There will be a sugar rush of instant growth because of all the cash being injected into the public sector, but without growth in the productive part of the economy, the private sector, this will dissipate within a couple of years. As the Office for Budget Responsibility indicated in its assessment, growth will actually tail off by the middle of this parliament. Indeed, the Resolution Foundation forecasts that this will be the second-worst decade for earnings growth in history. People will have only £13 more in their pay to show for the previous two decades.
They may not even get that because, pound to a penny, Reeves will be back in two years with another package of tax rises as growth slows and bureaucracy gobbles up her current spending splurge. She will blame the ageing population and the cost of sickness benefits, scheduled to top £100bn. She’ll blame that on the Tories and promise that only a new round of tax and spend will finally settle accounts with the past. It is most unlikely that it will.
Rachel Reeves is gambling that investment in the public sector can be self-sustaining—that we don’t need to bother about small and medium businesses disappearing because she can align the burgeoning public sector with a handful of big corporations, like Blackrock, and manage the decline through financialisation. Capitalism, to work properly, needs what John Maynard Keynes called the “animal spirits” of investors to thrive - a bit like Elon Musk, in fact. No Labour feminist is going to promote anything as distastefully testosterone as animal spirits . Britain will sink slowly into a diverse and egalitarian senility governed by an elite class of progressive bureaucrats. It’s all laid out in the budget Blue Book if you know where to look.