For some time, the Budget on 26 November has been looking as if it might be Rachel Reeves’ final fling before she is pulled away from the levers of the UK economy. But if so, it appears she may be preparing to go out in style. According to a report in the Financial Times, she is planning, yet again, to raise taxes while using as an excuse a supposed black hole left behind by the Tories.
The Office for Budgetary Responsibility (OBR) has warned the Chancellor that the productivity estimates it has been using for its economic forecasts have been too optimistic. Rather than growing at 1.1 per cent in coming years, it seems this will be downgraded to growth of 1.0 per cent or 0.9 per cent.
Reeves inherited neither a healthy state of public finances nor an economy which was doing well
The implications will be harsh, with the Chancellor left short of revenue to the tune of between £9 billion and £18 billion a year. If she wants to obey her fiscal rules, she will have to fill this hole either through tax rises or spending cuts, although the latter seems a remote possibility given the U-turn on the modest welfare cuts the government proposed earlier this year.
But what is particularly disturbing about the Financial Times report is a quote that is attributed to an unnamed official at the OBR. This individual seems keen to provide cover for Reeves to jack up taxes and even to break her promise not to raise rates of income tax, National Insurance contributions (NICs) or VAT. He is reported as telling the newspaper: ‘The untold story of this Budget is the historical legacy of the Conservatives that nobody knew about.’
The OBR, of course, is supposed to be scrupulously independent. Its reputation rests entirely on it standing above the political fray. Yet here is one of its officials appearing to side with Reeves’ efforts to blame the Tories for her tax rises. If the OBR has been too optimistic about productivity in its forecasts, the blame lies with the OBR and the OBR alone.
It is true that flat productivity has been Britain’s disease ever since the financial crisis of 2008/09, and that the Conservatives were in power for most of that time. Without productivity growth, we cannot grow richer as a nation. But Reeves’ time at the Treasury has not exactly helped the situation. One of her first acts in office was to wave through substantial, above-inflation pay rises for doctors and other public sector workers – all without any conditions on improvements to working practices.
Moreover, Reeves’s tax and spend policies are transferring resources from the private sector to the public sector, with a likely negative effect on Britain’s overall productivity. Disgracefully, productivity in the public services is stuck where it was when Tony Blair came to office in 1997, with modest gains between 2010 and 2019 wiped out in the years since. Private sector productivity has been pretty static since the pandemic and is scarcely above the level it was on the eve of the 2008/09 crisis – but it did at least rise strongly in the decade before that.
Reeves inherited neither a healthy state of public finances nor an economy which was doing well. But her legacy is almost certainly going to be an especially dismal one. ‘Securonomics’, as she likes to call her philosophy, was supposed to put fiscal responsibility at the heart of government. But in practice it just seems to mean more and more job-destroying tax rises, together with a loosening of control on public spending.
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