Credit to Rachel Reeves: while some chancellors opt to take part in the Sunday shows ahead of a fiscal event, the Chancellor has decided to do the media round the Sunday after her first Budget. Rather than spending the entire interview refusing to say what will be announced in the week ahead (the information is considered to be market-sensitive), she is instead having to answer difficult questions about what she announced on Wednesday.
It wasn’t an easy morning, as Labour’s Budget narrative continues to get tested to breaking point. Reeves was played a video on Sky News this morning of her comments back in June, when she said no tax increases would be necessary, apart from what was specified in the party’s election manifesto. How then, Trevor Phillips asked, could she explain hiking taxes by £40 billion just four months later? On the BBC, Laura Kuenssberg pressed Reeves on whether an employers’ National Insurance hike was being considered before the election. When ‘no’ was the Chancellor’s clear answer, Kuenssberg questioned why Labour was relying so heavily on the caveat of ‘working people’ written into its manifesto, if there really were no plans to fudge the tax ‘triple -ock’ that was promised.
Reeves’s answer to these kinds of questions about Labour’s real intentions is simple: to blame the Tories. ‘I was wrong’ she told Sky News this morning, when she pledged to keep tax hikes relatively small in terms of the overall Budget. ‘I didn’t know everything’ she told Phillips, about the ‘huge black hole in the public finances’ – one that she said the ‘previous government hid… from the country’.
It’s rare to get that kind of straightforward apology from a politician – but the context suggests it’s really an apology Reeves is making on behalf of the Tories. The same implication goes for Wednesday’s Budget, which she is trying to frame as the last Tory Budget rather than the first Labour Budget. ‘It’s now on us,’ she told Sky, as if Wednesday’s Budget is not going to count in this government’s legacy. ‘We’ve wiped the slate clean.’
This is also how Reeves is defending the decision to maintain the freeze on tax thresholds, which is pulling millions more workers into paying higher rates of tax, and indeed paying taxes all together. ‘‘Obviously the Conservatives froze them’, she told the BBC. Her comments did not extend to the obvious point: that Labour has chosen to keep the freeze in place, as it raises significant revenue. The decision to stick to the Tory timeline of ending the freeze in 2028 was framed as a Labour choice not to continue the freeze to the end of this parliament.
The question remains: will this framing work? It was put to Reeves several times this morning that Labour’s rhetoric ahead of election day seemed crafted to make the public believe all National Insurance hikes were off limits. It was a point she acknowledged, but did not concede. It was also pushed on both programmes that the £22 billion black hole narrative has been challenged now on multiple accounts – including from the Office for Budget Responsibility alongside the Budget this week, which did not recognise the £22 billion figure and more than halved it in its own assessment.
It was clear that Reeves did not do the media round this morning to get pulled into the details of those figures – or her own contributions to them, including the near £10 billion worth of inflation-busting public sector pay increases she announced weeks after entering No.11. Reeves was there to restate her fiscal rules and her commitment to fiscal prudence – as publicly as she could – in a bid to calm market jitters that led to increased government borrowing costs in the days after her Budget announcements.
The aim is pivoting now, the Chancellor said, from tax hikes and spending hikes, to public sector reform and growth. ‘I’m not satisfied with those numbers’ Reeves told Sky, when pushed to explain how a Budget for growth had led to a downgrade in growth forecasts in the latter half of the Parliament. ‘That’s my job now, to get those growth numbers up.’ It was the same message on the BBC: ‘‘We can’t just tax and spend our way’ to better public services, she said. ‘‘Reforming our public services, as well as growing our economy is now what I will turn to, to make sure we have better public services and more jobs paying decent wages.’
It’s worth stating that Labour’s first Budget is playing out differently to the mini-Budget. Reeves’s plan has by no means come apart. But there are similarities here, including the fact that Labour seems to have underestimated the need for spending restraint, in an environment with national debt approaching 100 per cent of GDP. The Chancellor’s emphasis this weekend on public sector reform – combined with reports from Bloomberg that the government plans to toughen its criteria for public sector pay hikes – both indicate that ministers know they need to do more to convince investors that this isn’t going to be a spending free-for-all government.
But what of Reeves’s pledge this morning that taxes will not rise again? It was an explicit promise from the Chancellor: ‘There is no need to come back with another Budget like this’, she told Sky. ‘We don’t need to increase taxes further’. Having just admitted she was wrong the first time this pledge was made, there will be questions about whether this pledge can really be kept. How will markets respond? The Institute for Fiscal Studies has already estimated that there is still a £9 billion black hole in the public finances. If that isn’t going to be funded through tax hikes, where will the money come from? Despite insisting borrowing won’t be the answer, markets must be convinced. The answer from Labour, once again, seems to be to go for growth. But having delivered a Budget which did not attach more cash to reform (and saw growth downgraded by the OBR) that is unlikely to be a convincing argument – at least not until the details of a growth agenda are actually announced.
Will ruling out more tax hikes be compatible with calming market fears about whether Labour can really afford all the spending they’ve just announced? Time will soon tell.
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