Is there any point to self-imposed restraints if they’re often broken? The chancellor should adopt a more transparent approach
The former Labour chancellor Denis Healey famously quipped that the first law of politics is “when you’re in a hole, stop digging”. That advice might serve Rachel Reeves well as she prepares to present her first budget later this month. Leaks suggest the process isn’t going smoothly. Ms Reeves faces backlash from both sides: cabinet ministers on the left are outraged by looming budget cuts, while Conservatives on the right accuse her of breaking a manifesto promise not to raise employers’ national insurance. Her fiscal strategy is at the heart of the criticism. Ms Reeves has promised “no return to austerity”, yet her fiscal rules seem to point to either tax increases or stealth cuts to departmental budgets. The Institute for Fiscal Studies (IFS) thinks the chancellor needs £25bn a year. The economy is improving. But there is little alternative to tax rises. The pandemic has shrunk the number of workers, reducing the slack in the economy and limiting government room to “pay for” its spending through printing money.
There is also a broader issue of fairness and efficiency. Raising taxes could help the government curb wasteful spending, while targeting the wealthy could reduce environmentally damaging practices, like private jet use. This would free up resources for crucial investments in infrastructure or boosting the purchasing power of public sector workers. Yet, Ms Reeves has still to provide a clear, cohesive message on taxation, leaving the public uncertain about her intentions.
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