Rachel Reeves’ November 26th budget looks as if it could the most consequential of modern times. No one quite knows what she is going to do, and I worry that neither does she. So many kites are being flow at the moment, it seems as if no decisions have yet been made, which, given it’s less than three weeks until Budget Day, is worrying to say the least.
One thing we do know is that she has a fiscal black hole to fill, which ranges from £20 billion to £50 billion depending on which economic forecaster you are listening to. She can’t borrow more because that would spook the financial markets. She can’t cut spending in any meaningful way because her backbenches wouldn’t stand for it. So that just leaves tax rises.
She’s hemmed in by the manifesto promise not to put up income tax, national insurance or VAT. It’s a promise she and the Prime Minister did not need to make, yet they did it anyway. In addition, she promised that after last year’s budget, she wouldn’t be coming back for more. Yet here we are. She’s flailing around trying to blame anyone but herself for the predicament she finds herself in, yet nothing has materially changed since her first budget a year ago. The blame the black hole on Brexit, or Covid, let alone David Cameron, is for the birds. This is a crisis made not just in No 11 Downing Street, but also Number 10. Last year’s budget should have been a pro-growth budget, yet most of the measures have depressed growth and business confidence. Starmer and Reeves are joined at the hip and have to take equal blame for it. And when a raft of tax rises is announced on the 26th, and the doom laden economic forecasts are announced, there are only two people to blame.
Rachel Reeves should be worried not just about the lack of growth and confidence, but by the fact that the Prime Minister is likely, at some stage, to cut her loose. She wouldn’t be the first Labour chancellor and Second Lord of the Treasury to be a scapegoat for the failings of the First Lord of the Treasury. Starmer has a ruthless streak in him, and it wouldn’t surprise me that a different chancellor will be in place come the Spring Statement next March.
If it turns out to be true that the main announcement in the budget is indeed a 2p rise in the basic rate of income tax, however it is dressed up, I would confidently point to November 26th as the day the Labour Party lost the next election.
Not only would it be the first rise in the basic rate of income tax in 50 years, it would mark the starkest betrayal of an election manifesto since the LibDems reneged on their tuition fees pledge in 2010. And we all know what happened to the in the 2015 election. And if the same thing happens to Labour one can only conclude that they will have brought it upon themselves.