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EEven in the current polarized and heated political environment, Accusation of “liar” One is strong. Still very competent for parliamentary use, the leader of the opposition, Kemi Badenoch, has taken to social media to make allegations against the Chancellor of the Exchequer: “For months, Reeves has lied to the public to justify record tax rises for more welfare. His budget was not about sustainability. It was about politics: bribing Labor MPs to save his own skin. Shameful.”
Reiterating her claim in Sunday’s televised round that Ms Badenoch would never miss the opportunity for an unarmed war, she said Ms Reeves “has not told the truth” and the shadow chancellor, Sir Mel Stride, will write to the Financial Conduct Authority about the consequences of all the pre-Budget leaks for people making major decisions on their pensions and other personal financial matters.
The Tories’ vigorous attack has generated some dramatic headlines and forced the Chancellor to defend himself in the words any politician fears – saying he “refused” to lie to voters rather than support the benefits of his policies. However, overall, the Chancellor should be acquitted of crime, albeit not without some rebuke for his general failure to be fully transparent and convincing in the presentation of policy, as he surely should have been. In other words, if she had been more open with voters about the reckoning of her time as both shadow chancellor and the real thing, she might not have found herself in such an embarrassing, defensive position.
It is absolutely true that in their last assessment of the state of the public finances before “scoring” the list of budget measures proposed by Ms Reeves, the independent Office for Budget Responsibility (OBR) announced that their fiscal targets for borrowing were about to be met by a margin of £4.2 billion. So, far from the Treasury disclosing to the media a huge deficit or “black hole” of £20 billion to £30 billion, there was actually a surplus against target. So the Treasury exaggerated the crisis facing the public finances, at best, so the Badenoch narrative goes, to justify raising taxes to fund higher welfare spending (especially on child benefit), thus appeasing restive Labor MPs and saving the careers of the Chancellor and the Prime Minister.
Perhaps not for the first time, the Treasury overstated the disappointment. More sensitively, changes to social security were not urgent, but there is no world in which a £4.2 billion surplus can be considered a solid basis for running the public finances for the rest of this Parliament and beyond. This is not cash to be played with, even if it seems like a lot, but there is an extremely small difference between two very large sums: £1.3 trillion in tax receipts and £1.5 trillion in public spending.
As the difference between two huge numbers, the budget deficit or surplus is liable to be highly volatile, and therefore needs to be strong enough to withstand predictable economic trends, let alone shocks. Translated into household terms, for the sake of light, this is like setting aside a monthly budget of £1,500 in outgoings and a buffer of £4.20 in outgoings and £1,300 in income, with considerable upside and downside to both figures. In fact, not at all. As Ms Reeves has rightly argued, their “headroom” was already significantly eroded by the U-turn on winter fuel allowances and disability benefits and the decline in productivity and growth in the years ahead. The result was that the famously low and inadequate headroom of £9.9 billion it had planned for last year was halved and the OBR made clear that poor productivity and growth forecasts would make it negative by as much as £16 billion.
Ms Reeves has now created a more financially and politically stable structure for herself, in which she enjoys about £21.7bn as a buffer against headwinds. This should avoid any “IMF crisis” like the one that befell the previous Labor government half a century ago. This means that she has managed to do the remarkable double task of appeasing her own backbenchers and keeping the capital markets reasonably convinced about the wisdom of lending the UK money. If she’s lucky and beats growth forecasts, as she claims, Ms. Reeves will have made some useful room for attractive tax cuts, or repealed the tax increases, before the next election, exceeding expectations in the right direction for change. But criticism remains.
There is no point pretending that, overall, Ms Reeves has not taken full account of her first term as Chancellor, and in particular the mood and speculation generated by her spin doctors and indeed in her public announcements before the Budget. The “setting the scene” speech on November 6, which was widely considered a signal to raise income tax rates, was a particularly poor move. In fact, she would be far better off reinstating the traditional budget practice of veiling – complete secrecy in the months before the big day.
More broadly, it can now be seen that Labor was actually very optimistic and misleading about taxation in the general election campaign last year and before. Indeed, several independent forecasters said at the time that the fiscal plans of both main parties were more or less hypothetical, and that whoever won the July 2024 contest would find themselves taxing more, borrowing more or cutting spending in some permutation or other.
Labour’s manifesto promises about taxation were completely fraudulent and certainly stupid, in a way that no government should find itself bound to and limited in its fiscal options like Labour. The mistake was not so much that Ms Reeves and her colleagues broke the spirit of the manifesto pledge and the point about “working people” (which they have), but that they made such a dangerously risky pledge in the first place.
Or put it this way: if voters knew in July 2024 what would happen to their tax bills now, would they still vote Labor and give Sir Keir Starmer his parliamentary landslide victory? This has to be doubted. Whether or not Labor “lied” is debatable, but the sense of a promise betrayed is undeniable.