Rachel Reeves is learning an old lesson the hard way: that it’s always easier to attack than to create, whether that’s a prosecution case in a trial, a business plan to raise venture capital, a regulatory policy framework, or a Budget.
Labour accused the Tories of financial incompetence, of “crashing the economy”, and of heartless austerity. On entering office, the Chancellor alleged that the Tories had left her party the worst economic inheritance since the Second World War and a “black hole” of £22 billion.
Now she is in charge, it’s no longer enough to attack. She needs to create a financial framework of her own and set a Budget within it. She is already finding that, whatever she does, someone will find it easy to attack.
Ministers in spending departments are attacking their spending allocations via leaks in the press. The Institute for Fiscal Studies has attacked the idea of raising Employers’ National Insurance Contributions as a clear breach of one of Labour’s manifesto commitments. Journalists are attacking the idea that taxes on shares and other assets are not taxes on “working people” since many people of modest means hold such assets.
High-income individuals and high net worth individuals are attacking implicitly, voting with their feet and leaving the UK in large numbers, with the UK already suffering from a mass exodus of millionaires. And bonds markets are attacking by selling government gilts, taking yields above the peak levels reached in late 2022 that Labour blamed on the “mini-Budget”.
Reeves hasn’t actually announced the Budget yet, making it a little premature to be comparing her overall competence with that of the Tory record she happily denounced. But she certainly seems to be struggling with her pre-Budget communications.
Every Budget these days involves leaks. Every Budget is associated with speculation about what it is going to include. Financial market volatility is always inevitable, and typically harmless. But it does seem a bit odd for the Chancellor to be announcing changes in the fiscal rules in newspaper columns rather than in a Parliamentary statement.
Markets are disturbed that every option for tax rises seems politically difficult (even assuming the tax take will actually rise, given the rate at which high earners and capital are leaving the country) and that every option for spending cuts is rejected by spending ministers, whilst the Chancellor has been so eager to abandon what limited constraints existed upon the government’s ever-increasing debt levels that she couldn’t wait to announce their relaxation in Parliament.
There was no doubt that the fiscal situation that the incoming Labour government inherited was difficult. If it does not get rescued by AI and other new technologies in its fight to induce a growth spurt, there may be no politically feasible way out.
It’s easy to bask in general adulation when all you have to do is attack. But when you have to create a Budget to respond to a difficult situation, being admired by everyone is impossible. Instead, you must choose who you want to hate you.
