Will Labour and the Tories be heading into the next election ‘following the same tram lines on spending?’ That was the question the BBC’s Laura Kuenssberg put to Rachel Reeves this morning, as the shadow chancellor insisted once again that the Labour party is committed to fiscal discipline, promising to ‘not play fast and loose with the public finances’.
Labour may not need to show a radical difference in spending priorities if they can stand out in other areas
Reeves tried to suggest the differences in tax-and-spend policy would still be significant, citing Labour’s proposed changes to non-domiciled tax status in the UK. But if this is really going to be the dividing line between the two parties going into a general election, then there is very little difference at all. As Kuenssberg pointed out, the non-dom figures Labour cites – increasing revenue by around £3.2 billion, the party says – is a drop in the ocean of overall tax revenue. And that’s if the changes raise the money in the first place (a Treasury source notes that when non-dom status was looked at during Sajid Javid’s stint as chancellor, it was estimated that the Treasury might actually lose revenue if they abolished it, due to changes in behaviour).
Reeves knows her hands are tied on the spending side, just as the Tories know they’re in a bind on the tax cut side. Also on the Sunday morning show, Financial Secretary to the Treasury Victoria Atkins had to tell watchers at home that there is ‘no headroom’ right now ‘to look at tax cuts,’ as the public finances were still far too stretched to be returning taxpayers’ money back to them.
Of course it doesn’t help that the Tories have been increasing public spending, including on new handouts like more ‘free’ childcare. Rather than rolling back the spending spree, Jeremy Hunt’s March Budget put the ratio of public spending to GDP on track for ‘43.4 per cent, its highest sustained level since the 1970s,’ according to the Office for Budget Responsibility. But much of the rationale comes from last year’s mini-Budget experiment, which saw Liz Truss’s government try to borrow billions more as the era of ultra-low interest rates was coming to an end. The crash-and-burn ending to that short saga isn’t just a lesson for the Tories, but for Labour too. Reeves knows this, which is why she delayed her £28 billion pledge for green investment, despite making such a show over investment policies when she was in the United States back in May. But right now, fiscal stability trumps almost everything else – or as she put it this morning, ‘making our sums add up.’
But Labour may not need to show a radical difference in spending priorities if they can stand out in other areas. This morning, they might have stumbled upon a game-changer.
Reeves’s attack on the Conservative party’s housebuilding record this morning was scathing, yes, but also proactive. Labour’s pledge to ‘unlock the planning system’ is what has been long overdue to increase housing supply and crucially it doesn’t take more taxpayer funding to do it. ‘The housebuilders are not saying that they need government money,’ Reeves told Kuenssberg when pressed about state intervention into the market. ‘What they are saying is they want those housing targets back and they want the planning system unblocked’ – something which she noted the government had the opportunity to do last December, before Tory rebels made them cave to the Nimby agenda instead.
When pushed on affordable housing supply, Reeves missed an opportunity to state clearly that more homes will equate to cheaper homes across the board. But she was robust that house-building policy – one of the biggest missing ingredients to Britain’s productivity problem – was an issue of poor regulation and planning, rather than an issue of missing money.
Watching the Labour party double down on this major supply-side reform pledge puts more pressure on the Tories to come up with their own answer to the housing crisis – especially if Starmer and Reeves decide they want to make this a key election issue. Labour’s plans may still lack detail, but the Tories seem unable to address the topic at all.
Comments