In this morning’s Times, David Aaronovitch – the eloquent former Eurocommunist and Iraq war supporter, and the brother of the bloke who wrote my fifth favourite Doctor Who – made the case that Trussonomics leaves Labour in a slight hole. That it is notwithstanding the fact it has left the Government in a much bigger one. But after the last month, it would be nice to think the Opposition were also on a sticky wicket.
Aaronovitch’s argument is that the market reaction to Kwarteng’s mini-Budget spells trouble for Keir Starmer. Not in the sense of our columnist Daniel Hannan’s conviction that the whole panic was the product of Labour shuffling a little closer to power, but because it shows just how important market confidence is to a government wanting to achieve its agenda. The trouble for Labour is that where Truss promises borrowing for tax cuts, they do so for spending.
The abolition of the 45p top rate of tax was not what spooked the money men. Instead, it was the sign that the Government was dashing for growth and borrowing more without any evidence it planned to get spending under control and debt down if that growth did not manifest. This matters, as that prospectus, in its total cost, is not wholly unlike that which Starmer and Reeves plan to introduce.
Labour supported both Kwarteng’s reversal in the rise in national insurance contributions, and the 1p cut to the basic rate of income tax. Together, that is about £16 billion in spending, to go with the tens of billions being deployed on capping energy prices. The rest of the Chancellor’s tax cuts – and the cancellation of the rise of corporation tax – did not receive Starmer’s seal of approval. But that is not because he has become a new paragon of fiscal orthodoxy.
In the particularly chaotic and uncoordinated fashion that has already become the hallmark of comms under Truss, the Government has started floating a variety of measures to start getting spending under control. These include uprating benefits in line with earnings rather than inflation, and allowing rising prices to eat away at departmental budgets. Let us leave aside for a moment whether easier of these measures would be politically impossible, and see that that they suggest a government keener on cutting taxes than maintaining spending levels.
Whilst Labour may not be keen on cutting tax, they are interested in increasing spending. The Opposition will not allow public sector budgets to shrink, especially as they provide much of their core vote. They will also commit themselves to various new spending proposals, from their so-called Great British Energy, £28 billion fund for green investment, and the de jure (rather than de facto) nationalisation of the railways.
All of that will cost money, and suffers from the same problem as Kwarteng’s proposals: more borrowing, on top of several years of spiralling debt amongst huge government interventions. Without tax rises, it will be liable to cause the same turmoil that the mini-Budget did. It would be Johnson’s 2019 prospectus minus Brexit: vote for us for investment in public services, without having to worry about tax rises to pay for it.
But that pitch before the pandemic, Ukraine, and the Omnicrisis, when interest rates were low and borrowing for long-term investment looked more feasible. So if Starmer really wants to use the opportunity provided by the Government’s mess to appear as the embodiment of rectitude, he will have to be honest with voters about the need for tax rises. That involves more muttering about windfall taxes and balancing the books on the backs of the better off.
However, I don’t think he should be too worried. Unlike in 1997, Labour will not be inheriting a booming economy with taxes and state spending shrinking as a percentage of GDP. They will inherit one where government finances – unless that 2.5 per cent growth really is achieved – involve a larger state borrowing more. Yet public services on their knees. If you think the Government’s poll ratings look bad now, imagine if the NHS collapses this winter.
Then imagine if the headlines, for the next two years, are dominated by the Government’s failure to get a handle on the economy and deliver growth, whilst crimes goes unpunished, ambulances fail to arrive, and teachers, nurses, and rail workers strike with alarming regularity. If Starmer told voters that the price to pay for better public services and economic stability was a few tax rises, I imagine they would go for them.
This reminds me of someone. If Labour’s agenda is to balance the books by raising taxes whilst investing in innovation to boost growth, then they are doing a half-decent impression of one Rishi Sunak. The Trussites may have succeeded in storming the Treasury citadel and throwing out the former Chancellor’s approach they so disliked, only to have it re-imposed after losing an election based largely on their own incompetence.
Yet rather than being implemented by the calmly competent Sunak, these policies would be delivered by Starmer’s merry band of Corbyn apologists, classless class warriors, and a man who got one of the lowest ever scores on Mastermind. So rather than install a bold new dawn in economy policy, Trussonomics would be the author of a new form of Butskellism, but one which should raise the eyebrows of anyone interested in a bit of economic peace and quiet. It’s a funny old world.