Last week, Rachel Reeves delivered her, and Labour’s first budget for fourteen years. The first budget ever by a woman (did she mention that?).
You might think that having had so much time to think about how to make this country prosperous again that it would have been better received than it has been. But no, it went down like a lead balloon. It was a disaster.
From the pre budget scrapping of the winter fuel allowance to the inheritance tax on farmers which could destroy food security here in the U.K., the entire budget was ill conceived and muddle headed.
On top of that, it was tin eared.
She claimed to have found a £22bn black hole in the accounts on day one in the job but the Office of Budget Responsibility (OBR) have said that any black hole, such as it was, had been created by their day one largesse in handing huge pay rises to train drivers and doctors, astonishingly without insisting on any improvement in productivity. Even the Institute for Fiscal Studies have said that the deficit was there in plain sight for anyone who wanted to look for it before the election, and it was definitely not as big as she makes out.
Despite instructions from Labour’s communications team for everyone to parrot the same tired lines of a £22bn black hole, 14 years of Tory chaos and this being a one off budget to fix the problems of the country, few of my constituents are believing this rhetoric. My inbox has been filled with people who are going to struggle with these new taxes, including lifelong Labour supporters who now regret their vote at the last election.
The headline tax rise was a swingeing increase in employers national insurance which we are told is not a tax on working people (however a working person is defined). Unfortunately, the reality is that it is exactly that. Employers were meant to make up for this tax by increasing prices and reducing future pay rises; so it is a tax on working people as well as business owners, (who are also working people, Chancellor).
Underpinning the budget is a hope, more like a gamble, that inflation remains low, at or around the Bank of England target of 2%. But it won’t, it will rise. It has to rise, in part due to this budget.
Feed in costs from the budget such as increases in employers national insurance will lead to increased prices for goods and services. Raising the minimum wage wage might sound good in theory, but when it happens it forces upward pressure on all wages in a firm as the wage gaps shrink between staff. Eroding differentials mean businesses either lose existing staff who feel undervalued by seeing new starters coming in on not much less than them, or pay them more, leading to wage inflation.
Add to this the truly ruinous green energy policies being pushed by Ed Milliband, and far from everyone’s energy bills coming down by £300 as promised in their manifesto, they will be rising now, and again in the future. In fact I predict that if they continue down this path that energy costs to homes and businesses could become unaffordable for many people.
The entire budget is built on the hope that inflation remains low and that interest payments on the £140bn she’s looking to borrow will remain stable. But they won’t. Interest rates will rise and inflation will rise and no matter how hard she scolds the Bank of England for their inability to control it, they will be powerless to prevent it.
Like a car crash in slow motion, her budget is doomed from the off, and for all the ‘taking the tough decisions’ and it being a ‘one off budget’ meaning she won’t have to come back and ask us for more money, she’ll have to ask us for more money. Probably sooner rather than later.
The Labour government has fallen from grace with such spectacular and unprecedented speed that despite blaming everything on the nasty Tories, 14 years of chaos and a 22bn black hole, even their own supporters are publicly saying they’ve got it wrong.
They had a chance to do the right thing. Despite only getting 20% of the public vote, their mandate gave them a chance to finally wipe the slate clean, and set the country back on a prosperous track once again.
But they’ve failed.
They’ve failed to ‘smash the gangs’ delivering migrants into the uk, they’ve failed to stop using U.K. hotels to house them, they’ve failed to reduce energy bills (they’ve just gone up £300, not down) and they failed to boost the economy.
This budget will be seen as one of the most dangerous ever delivered by a chancellor as it does nothing to address the problems the British economy faces, and simply borrows even more money to hose at an ever expanding public sector that cannot drive efficiency and in many cases, cannot deliver.
What Britain needed was something different. What we got was an acceleration of the very things that drove us to where we are today. Far from solving our problems, it’s going to turbo charge them.
Before this election, people were talking about a two or three term Labour government being elected. If the budget and their performance to date is anything to go by then they’ll be lucky to complete one term. Rising inflation will undermine every ambition this budget has and simply propel us towards the arms of the IMF. It’s like the 1970s all over again.
Despite their attempts to portray themselves as economically prudent, this budget has simply proven that Labour are, as always, a high tax and spend party, despite the fact that it never has, and never will work.
Come the next election, I have a feeling that the public won’t be quite so generous.