A radical, redistributive Budget putting Britain on the right track
Rachel Reeves has delivered one of the best Budgets in 14 years that will make people better off, says Sam Fowles
Rachel Reeves just delivered one of the best, and most radical, Budgets in 14 years. She’s not a natural public speaker. But, after 14 years of smarmy PR men at the despatch box, she came across as a breath of fresh air.
Governments can’t decide how much it costs to run a country, just where the burden falls. For the last 14 years “fiscal responsibility” has been defined by spending cuts. But a decade of austerity didn’t really make government cheaper, it just shifted the costs into the most damaging places. Under-funding the NHS, for example, led to record numbers dropping out of the economy due to long-term sickness. The macro impact was “historically poor growth” and a failure to bring down the deficit.
Putting the state to work
Reeves’ Budget puts the state to work in the areas where it’s best placed to help (i.e. where natural monopolies prevent the market from functioning). Spending will go up by £70bn per year, with the main beneficiaries being health, education, and (whisper it) economic stimulus. Opponents will accuse her of a “tax raid”. In fact, Reeves effectively cut taxes for the vast majority by putting an end date on the tax threshold freeze. Tax rises were targeted at “money for nothing” (inheritance and capital gains), bringing taxation of unearned income more in line with the rates paid by those who work for their money. Only 0.5 per cent pay capital gains and four per cent pay inheritance tax: Reeves has delivered a windfall without increasing taxes on the vast majority. Business asset disposal relief will increase, so the tax rise is unlikely to be much of a drag on productive asset disposal. Employers benefit from National Insurance because the benefits it delivers prop up demand. Bringing employers’ national insurance contributions slightly more in line with workers makes sense. Reeves has rightly protected small businesses from the rise.
Most radical (and sensible) is Reeves’ commitment to investment. The UK has fallen well behind France, Germany and the US in productivity, caused by a failure to invest in capital and skills. Reeves has recognised that the state must take the lead in investment and delivered the largest package in a decade, with the bulk going to R&D, infrastructure, and green energy. Reeves created the headroom for this by recognising what every economics student understands: investments pay back. Government borrowing will now factor in the value, as well as the cost, of investment.
Reeves’ prosecution of her predecessors dishonesty was rapier-sharp
Reeves’ prosecution of her predecessors dishonesty was rapier-sharp. Charges of concealing information from the OBR, spending its “emergency” fund three times over, and promising unfunded compensation for the Infected Blood and Horizon victims, were substantiated with an OBR dossier detailing the £22bn “black hole”. Liz Truss wouldn’t let the OBR review her mini-Budget, causing a financial panic. Reeves, by contrast, committed to disclosing more financial information than any government before. Transparency breeds trust. Markets will have more confidence in a government that shows its working out (and be more likely to lend to a government with a plan to pay it back).
It’s not a perfect Budget. The OBR predicts growth will increase at a little more than 1 per cent. But the top-line figure likely conceals the real impact, which is redistributive as well as growth-oriented. Most people will, in a few years, likely be better off as a result of this Budget. It remains to be seen whether Reeves’ stimulus will be big enough (it’s dwarfed by Biden’s $1.9 trillion “American Rescue Plan”). It’s disappointing not to see more money for justice and foreign aid, or more autonomy given to institutions like GB Energy. But, for the first time in more than a decade, the British economy might be headed in the right direction.
Sam Fowles is a barrister