The budget was a disorientating novelty. After four months of seemingly drifting governance, and four years of cripplingly cautious opposition, this was the moment when Keir Starmer’s Labour party made some big, bold, controversial and unapologetic choices.
The collapsing reality of Britain’s public services and the stricken state of the country’s public finances forced the chancellor, Rachel Reeves, into a corner. Campaign fairytales about willing “growth” into being and wishing problems away no longer offered protection. She had to decide whether she could actually live with the public squalor that flowed inescapably from the inherited Conservative spending plans—plans she didn’t demur from when they were written—or whether, instead, she preferred to give substance to the nebulous “Change” of Labour’s manifesto title. To do this, she would need to break from those plans and her whole business-first campaign pose, by jacking up significant taxes to start raising the revenues needed for a serious repair job.
She chose this latter course, and in so doing gives Britain an overdue push in a social democratic direction. The very fact of this choice is the biggest single story of this this budget. Beneath it, though, are a raft of questions about the precise path that the chancellor has taken to a better-funded state. Some of those questions concern snares that could yet prove to be her undoing.
Broadly speaking, the budget has funded a public expenditure increase of about 2 per cent of GDP, roughly covered by a 1 per cent of GDP increase in extra taxation, together with a 1 per cent of GDP increase in borrowing. The borrowing is notionally earmarked for cancelling the inherited plans for growth-sapping cuts in investment for public infrastructure, such as rail, road, energy facilities, school and hospital buildings. The higher taxes, by contrast, are intended to fund an “emergency injection” into the day-to-day running of public services, foremost among them the NHS.
That’s the big picture, which looks very progressive. As soon as we zoom in, however, we can see all manner of awkward details. Most obviously, the single biggest slice of the tax revenue is coming from what is, unambiguously and exclusively, a tax on work. After toe-curling weeks of spin, with Labour pretending that employer National Insurance contributions could somehow be levied without any effect on the “working people” that the party has vowed to protect, the chancellor now admits that this tax will, in time, be felt in pay packets. More subtly, the fact the government chose not merely to raise the rate of the contributions but to slash, almost in half, the earnings threshold at which they start to be collected, means this plays out disproportionately as a tax on lower-paid work.
Yes, the minimum wage is rising and there is some effort to ask the rich to contribute more—for example by tightening inheritance tax reliefs and modestly increasing the charge on capital gains and sales of second homes. But the government continues to duck all the serious decisions it needs to make on social security to grip Britain’s escalating poverty crisis, or the overwhelming strains it is placing on schools, health services and the wider public realm. Housing allowances will again be eaten up by rising rents; inflation will again eat more deeply into capped benefit payments; yet another 63,000 kids will be caught by by the two-child limit by next spring.
The hard choice to prioritise the vast but ailing NHS for sustained spending rises will be in line with what voters would expect, but its logical flipside—the continuation of eye-wateringly tight settlements across many smaller government departments—could spell even more of the sort of trouble that has recently boiled over in other overlooked areas, such as prisons, as this parliamentary term grinds on.
In striking contrast with New Labour, whose spending rises started slowly and built only gradually, Reeves and Starmer are turning on the taps rapidly over the next year or two, and will then slow the pace of increases right back, down to rates not far above those pencilled in to the inherited Tory plans as the next election approaches. With disposable incomes also expected to rise much, much slower through this parliament (at just 0.5 per cent annually) than they did on average under Tony Blair and Gordon Brown (1.9 per cent a year), that contest could be tough.
Another contrast with New Labour concerns the careful way in which Tony Blair and Gordon Brown had prepared the ground for their own National Insurance rise “for the NHS” in 2002. The slogan of their election campaign the year before had been “schools and hospitals first.” Their manifesto had vowed to lay off income tax, but—unlike that of Starmer and Reeves—was wisely silent about National Insurance.
This year, by contrast, Reeves asserted time and again that every last ambition she had was “fully funded” while Starmer rashly insisted that, unlike past Labour leaders, he wouldn’t “reach for the tax lever”. Having ducked the chance to have an open argument before the election, they must now attempt, somehow, to win retrospective permission for funding the restored public realm they are attempting build.
In the week before democracy itself is on the ballot in the US, it hardly needs to be said that political trust is at a premium. The evasive election campaign Britain endured in the summer did nothing to rebuild such faith. The last, best hope now must be that the benefits of public investment are sufficiently palpable that voters who were never given the chance to be persuaded by argument that decent public services are worth paying for, can now be persuaded by experience instead. Who knows if it will work. But if it does, then at the ballot box next time voters will forgive Labour for misleading them the last time around.
