Reeves is gearing up for a blame game
You can hear the spin a mile away; as the Chancellor’s team prepares for the Spring Statement the groundwork is being laid.
Despite the fact that the inevitable consequences of the government’s multi-billion pound tax raid on businesses have been clear for months, with economic growth suffocated, sources close to the Chancellor are telling the media that “the world has changed.”
In other words, anything unpleasant that Reeves has to announce at the end of this month is a result of unforeseeable geopolitical developments. It’s a convenient line, and we won’t dismiss it entirely, but let’s just recap on the situation we find ourselves in.
We now have months of hard data revealing the impact of government policy, of ministers’ choices, on employers and industries across the country. From agriculture to family businesses, from retail to hospitality, leisure, manufacturing and the services sector, businesses are meeting the imposition of higher taxes in a number of entirely predictable and rational ways.
Helpfully, these were outlined yesterday by Andrew Bailey, the Bank of England governor, in a letter to Dame Meg Hillier, the Labour chair of the Treasury Select Committee. Bailey appeared in front of that committee yesterday, ahead of which he wrote to Dame Meg to outline the ways in which the Bank expects employers to respond to the new costs facing them. “Firms may choose to absorb this increase in costs within their profit margins, pass on the cost to consumers through higher prices, or mitigate the impact by reducing nominal wages or employment.” His conclusion is stark: “by far the most plausible assumption, supported by the survey evidence, is that firms will spread the adjustment along all four channels simultaneously.”
That, Chancellor, is how the world has changed. That is why growth remains anaemic and that is why dramatic spending cuts will be necessary in the Spring Statement. It’s why S&P’s composite PMI output indices for the UK – as compiled yesterday by Julian Jessop – show that business activity has been shrinking since last year’s Budget.
Yes, tariffs and security concerns now come into the equation, of course, but their impact will be to weaken an already weakened economy. It is now depressingly easy to cast forward a few months and picture the Chancellor announcing that taxes will have to rise because, you’ve guessed it, “the world has changed.”