Forget Streeting, Starmer’s sinking his own ship (with a little help from Rachel Reeves)

Desmond Clifford

UK Budgets have become strange affairs. These days, something called the Office for Budget Responsibility (OBR), an independent public body sitting outside government, publishes a forecast report alongside the Chancellor’s budget.

The central feature of this report is a figure noting the budget deficit, the gap between what the government raises and what it spends. Currently this figure is around £20bn, not a negligible sum but hardly extravagant either in the context of UK Government finance.

The British Government raises money in two ways: tax and borrowing. They’ve been borrowing more than usual in recent years – to pay for Covid, among other things – and the “debt to GDP ratio”, one of the measures economists care about, is higher than usual for Britain.

In this financial year the Treasury will spend something over £100 billion just on the interest payments on Britain’s debt. For context, that’s four times larger than the entire Welsh Government annual budget, currently around £26bn.

The question arises: is this the best way to run the nation’s tuck shop? No, is the simple answer.

Politicians have built a system where the Chancellor is at the mercy of the OBR and its distorting fascination with a single annual figure. The starting point for every budget now is to come up with a fiscal fix which meets the OBR deficit stat.

This is inefficient and anti-democratic. It doesn’t matter who voted for the Government, or what their expectations were, the Chancellor must satisfy the OBR before she even thinks about anybody else.

That’s why you never hear a report on Rachel Reeves without a reference to the “bond market”, the crowd the UK Government borrows its money from. If you thought Rachel Reeves works for you, forget it – she works for Mr Bond.

The problem is that this approach squeezes out politics. Some people think that’s a good thing, but if budget decisions are driven by technocratic concerns first, then a very obvious question is begged. Why elect a government with a Chancellor of the Exchequer?

Technocrat

We could go the whole hog and appoint a first-rate technocrat to manage the nation’s economy – Merfyn King or Martin Lewis, for example. Either would be excellent. They could give the UK Government an annual block grant based on a technical assessment of what they think the country can afford.

Tempted? Hmm. It’s not democracy, is it? The D-word, to which most of us remain stubbornly committed, works when we elect people with a plan and they carry it out.

The Chancellor and her boss the Prime Minister didn’t exactly help themselves by ruling out, during the election campaign, the possibility of raising Income Tax, VAT or National Insurance.

She did, in fact, raise NI last year but squirmed out of it by saying her promise never meant the employers contribution, only the employees. A sophistry, surely, and obviously a tax on jobs; unsurprisingly, unemployment went up this very week.

The manifesto promises were stupid, by the way. Why on earth box yourself in?

The three taxes account for 75% of all UK revenue and, without them, Chancellors are reliant on jiggery pokery linked to pensions and tax thresholds to raise money.

Rachel Reeves has put herself in a bind. I repeat: she has put herself in a bind.

Political capital

Last year was supposed to be the tough budget, using the government’s massive majority as political capital to front-load bad news before relaxing progressively through the parliament on the proceeds of growth (btw, how’s that going…?).

She mucked up royally, you’ll remember, scrapping winter fuel payments for pensioners without warning or mandate; a combination of poor manifesto planning and not looking beyond election day, plus dumb politics once in office.

For all her and Keir Starmer’s combined intelligence – I imagine they’d both pass the eleven plus – the sum of their political nous is lower than the Bank of England base rate. They had a plan for the election but not, it seems, for government. Plaid Cymru, take note.

According to Sunday Times columnist Jason Cowley, and others in the know, Reeves intended to abandon her election pledge and increase income tax by 2%.

In a cunning plan worthy of Baldrick, she planned to pair this with a reduction in National Insurance contributions. These changes would have affected higher paid workers while remaining more neutral for lower incomes. Apparently, this scheme belonged to Swansea West MP, Torsten Bell, the man who knew the answer to everything until he became a Treasury Minister.

Rachel Reeves herself hinted to all and sundry in the heaviest possible terms that she intended raising income tax. It turns out she was having a laugh, stopping just short of donning a clown mask and shouting, “Fooled You!”.

What a way to run the nation’s fiscal policy! Is this how you build trust with a public, even the Labour-supporting part of it, which feels defensive, let-down and stuck on a life raft without paddle or compass?

Even her friend Mr Bond responded by increasing the price of borrowing (it’s important to register that the price of borrowing relates directly to Mr Bond’s confidence in UK Government decision-making).

If Reeves had gone through with Plan A and raised income tax, then she would have exploded a torpedo under this government and marked its effective end.

No government can survive such a blatant breach of its election manifesto. In filling the relatively modest revenue hole identified by the OBR, she would have written Nigel Farage’s next election manifesto for him.

Why she placed herself, and the Prime Minister, in this position is beyond my grasp.

Income tax

For what it’s worth, I’m very much in favour of income tax as a revenue source. It’s easy to collect, can be targeted according to income and, crucially, avoids inflation.

I was mystified when they ruled it out during the election. But they did, and no one made them do it.  So, they’re stuck with it.

Yet another terrible week for Starmer. Lots of bad stuff beyond their control happens to Prime Ministers. What’s remarkable with Starmer is the extent to which he brings it on himself.

For all his apparent joylessness, he seems fundamentally unserious. His original shadow Chancellor was the softly spoken and cerebral Anneliese Dodds, who quietly resigned from government a few months back in despair at its general uselessness.

Starmer dumped her in favour of the more showy but reckless Rachel Reeves. Like her boss, she seems unmoored from any true sense of politics.

At least the Chancellor’s u-turn knocked Wes Streeting off the front page. Starmer’s pre-emptive briefing against a leadership move resulted in the humiliation of his having to phone Streeting with an apology.

You couldn’t make this up. Surely Streeting should be the man apologising – unless Starmer’s people made it all up, in which case they should be out the door?

It’s hard not to conclude that this government is hopeless. Scarcely a single minister has made real public impact, at least not for good reasons.

If they look better than their appalling predecessors, so would Minnie Mouse and Pluto. I say this without pleasure.

Like a lot of people, I expected better.

John Major

People may recall the election of 1992.  Neil Kinnock was set to win until the last moment when John Major snatched victory. Within months, however, Britain crashed out of the European currency mechanism in one of Britain’s worst humiliations.

Major remained in office (“but not in government”, someone quipped) for another excruciating four and a half years – but his effective premiership ended that day in September 1992.

Isn’t this where Keir Starmer’s heading?  The hole he’s digging gets bigger by the day. I’m not sure that Clement Attlee and Nye Bevan on a tandem could save him now.

What should happen next?  The Chancellor will not now ignore the manifesto she paraded before the country barely 18 months ago.

Good. This time she’ll have to draw revenue from the nether world of taxes not ruled out during the election.

Expect a Budget of obscurely shifting tax thresholds and pension-grabbing. Next election, they should take courage and not rule anything out beforehand.

People who vote Labour expect difference, not Conservative government with a slightly softer heart.

Second, it’s time to look again at the OBR’s mission. There’s merit in objective forecasting, but to focus the entire fiscal approach on a single figure in a single year is distorting and, frankly, strange.

What government needs is a set of data, not a single figure litmus test, and we, the public, need to be presented with a fiscal strategy covering the full lifetime of a government.

At each Budget they should be able to demonstrate progress towards their strategic policy goals, including convergence over time with the OBR debt forecast.

To do that you need, obviously, a government with a strategy and policy goals in the first place. If Starmer has any, he’s kept them to himself. They can’t go on like this. Rachel Reeves’ mad income tax plan would have exploded a torpedo under the government on 26 November. They’ve walked away from that.

No torpedo then, but an alarm clock, and it is set for 7 May next year.