Budget chaos isn’t a game, it’s caused real harm
It’s been the longest run-up to a Budget anyone can remember, it started just after the last Budget, so how much damage has this chaos caused?
In her first speech as Chancellor in the first week of July last year, Rachel Reeves used the word stability 8 times.
She pledged to “deliver economic stability” and she reiterated that commitment to the Bank of England and to the Office for Budget Responsibility, the OBR.
She told us then “these institutions are guarantors of our economic stability and I will not be playing games at their expense.”
In reality, the last few weeks – months even – have been a chaotic guessing game, with the Chancellor pulling the country this way and that, floating major economic policies then abandoning them, and the OBR has been right in the middle of it.
The government today stands for the opposite of stability.
Game over for Starmer?
Politically, it’s basically game over for Keir Starmer who has dragged his party down to irrecoverable levels in the polls. Economically, the foundations are sagging – nothing stable here – with quarterly growth this year declining from 0.7 per cent to 0.3 per cent to 0.1 per cent.
I’ve been working in Westminster and the City for almost 20 years and I cannot remember a more undisciplined, reckless and damaging approach to economic policy.
The only comparison is the flash-in-the-pan disaster of Liz Truss and her mini-Budget, but while the forces of politics and economics put an end to that nonsense relatively swiftly, what we’re witnessing now is a drawn out, lingering sense of decay and drift. And you can at least argue that Truss had a plan. She just didn’t have a plan for her plan.
Back to the OBR, and its central role in laying the tracks on which Chancellors build their Budgets.
Personally, I think the institution and particularly the process it runs, is ripe for reform. Their authority and their timeframes relegate Chancellors to participants in a bureaucratic process rather than leaders, but as Rachel Reeves says, we must deal with the world as it is not as we would like it to be.
OBR dragged into the mess
Besides, Reeves boosted the OBR’s status and gave it God-like authority so she’s stuck with them.
Today, the shadow Chancellor, Sir Mel Stride, has written to the OBR saying that Reeves had “sullied the Budget process by allowing it to be played out in the newspapers and drawing the independent OBR into the crossfire”.
The reason he says this is because a series of government leaks implied that the OBR has found an extra £10bn of breathing space; that things weren’t as bad as they first thought and that, therefore, the Chancellor wouldn’t have to increase income tax.
Remember, days earlier, Reeves addressed the nation and then again spoke to the BBC at length, specifically laying the groundwork for hikes in income tax.
Economists – and Mel Stride – point out that she did all this after the OBR was supposed to have delivered its final forecasts as part of the Budget process.
People are now questioning the Chancellor’s claims about the supposed revision to economic data that got her off the hook.
The OBR delivered its final forecast to the Chancellor on October 31st, but the income tax plans weren’t ripped up until two weeks after that.
Mel Stride has asked the head of the OBR to “confirm that no changes have been made to the forecast since Oct 31, beyond the impacts of measures submitted by the Treasury for scoring”.
It will all come out in the wash, it always does, and on Wednesday next week we’ll get a lot more information, but this row over who said what, when and why is just part of a bigger story about a Chancellor who is not in control of her Budget and a Prime Minister who is barely in control of his government.
Businesses and consumers paying the price
The impact of this is real, it isn’t a Westminster game, it isn’t just about party point scoring.
Survey after survey tells us that business confidence has been hammered by this uncertainty; that consumer confidence has cratered because of this uncertainty; that investment decisions and hiring decisions have been frozen because of this uncertainty.
Just today, a survey of 400 entrepreneurs collectively responsible for £8bn in revenue – revealed that 95 per cent of them say the government does not reward hard work. And who can blame them? What is the reward for their hard work?
Higher taxes, the threat of even higher taxes, a shambolic government and chaotic approach to economic policy-making that undermines their ability to plan, invest and grow.
Also today, the ONS has released its findings setting out what’s keeping businesses up at night and the number one issue reported by firms this month is, you guessed it, economic uncertainty.
The best that we can hope for next week when the Chancellor delivers her second Budget is that it puts an end to the confusion and uncertainty. We know it will be painful, we know it will come at a cost, but at least the shadow fighting will be over and we’ll actually know what we’re dealing with.
And if you want to get to grips with the Chancellor’s announcements and what it means for the the country, for business, for your finances – then join me and my colleague Alys Denby along with an all-start cast of guests from politics, the City and business for a special live Budget Broadcast streaming from 2pm on Wednesday 26th November – streaming on YouTube and across out socials.
See you there.