Change. Remember that phrase? The one that was persistently pedalled in every interview, speech and conference that Labour did before the election.
And yet it has been just over one hundred days since they entered office, and it is hard to see any difference between Labour and the Conservative Government they supposedly replaced. However, Rachel Reeves’ impending budget, which is set to be announced on Wednesday the 30th of October, is an opportunity for Labour to get back on the front foot following their recent controversy. This budget will be their first big set-piece.
An opportunity to clearly set out their priorities, their values and the direction they want to take our country. But the backdrop of this budget isn’t a pretty one. NHS waiting lists have risen thirteenfold since 2011.
Schools are crumbling. Prisons are overcrowded. Local governments are on their knees.
There is a gaping “£22bn black hole” in the public finances. On top of this, Labour’s previously ambitious economic plan has been cut back to the bare bones. The yearly £28bn Green Investment Plan was taken off the table.
Any discussion on Brexit has been abandoned. The National Wealth Fund has been cut by £1.5bn. Yet the most sickly icing to top this cake is the fact that Labour willingly chose to adopt the Conservatives’ strict fiscal rules when they took power, which has boxed Reeves into an extremely small corner.
As a consequence, if Labour want to provide the level of investment that is needed in our public services, then major tax rises or intense spending cuts will be inevitable. Unless, of course, they change or ditch these restrictive and unnecessary fiscal rules, which is indeed a viable option. In fact, seventy members of Reeves’ own party are urging her to do it.
Lucy Rigby, co-chair of the Labour Growth Group, said the government needed to “break the Tory doom loop of low investment, low productivity, and low growth if we’re going to deliver the change our constituents want to see in their communities”. Yet there is little sign from the Treasury that this will happen, and the fiscal rules were clearly labelled as a “non-negotiable” aspect in the Labour manifesto. The chancellor subsequently finds herself in a difficult position of trying to ride two horses at once.
She wants to get the public finances back in shape while simultaneously investing in the future. That is not easy. Perhaps tax rises will be the answer.
Labour have promised not to increase taxes on “working people”; but capital gains tax, inheritance tax, and employer national insurance contributions are hinted to be hit. Capital gains tax increases are particularly favoured as rates are unjustifiably lower than on other forms of income. For example, the top rate of tax on employment income is 53%, but some capital gains face a top rate of only 20%.
Closing loopholes is also predicted to bring in around £12bn, and raising employer NI contributions is estimated to raise £17bn. Labour also already announced in their election campaign that non-doms, private equity, windfall taxes on the profits of energy companies, and VAT on private schools. They have also hired a COVID Corruption Commissioner to try and recuperate the money wasted by the Tories in dodgy COVID contracts.
The Chancellor subsequently made it clear in an interview with Andrew Marr that “people will be in no doubt when we do the Budget—those with the broadest shoulders will be bearing the largest burden.” So perhaps it is not doom and gloom after all, and Labour are being brave and ambitious when it comes to finding money for our public services. But we cannot get complacent. As we have seen over the past fourteen years, the cost of inaction costs more then action.
Austerity is a false economy and the public are frankly sick to death of it, (for some, quite literally). We need to start spending money in areas that will actually expand the economy and improve the wellbeing of our work force. We need to increase productivity and growth.
We need to stop being afraid of borrowing money to invest. David Cameron was once quoted saying “we need to fix the roof while the sun is shining”. Yet, despite fourteen years of Tory rule, they did not fix the roof.
In fact, the austerity they imposed allowed it to completely fall in and drench us all soaking wet. If Labour do not invest, they will keep us sodden and the roof will remain in pieces.