Change. That’s what Keir Starmer promised, isn’t it? In white letters against a bright red background, on the cover of his election manifesto, and in speech after speech. Yesterday’s budget was his once-in-a-government chance to show voters what he means by that, a heavy load borne by Rachel Reeves. Not only will she set the government’s direction for the next five years; she has to refresh an administration not even four months old but already flagging under petty scandal, office politics and dwindling popularity.
Her budget does deliver some welcome change, but it is no gamechanger. It stops our hospitals and schools from collapsing, but the sums for local councils and other less-loved public services will not be enough to help them rebuild. It taxes wealth a little more, but not enough to upset big asset owners. It certainly does not reset the relationship between how wealth and work is taxed, as Starmer and Reeves were promising until quite recently.
The best news is the extra money; most of the bad news is how some of it will be raised. Billions will be pumped into the NHS and schools, and fast. Day to day spending for public services over the next couple of years will shoot up. After that, the investment tails off – so much so that Reeves seems to be leaving herself room for another cash injection around 2027. In January, my colleague Denis Campbell reported that Princess Alexandra hospital in Harlow, Essex, had suffered 40 leaks of raw sewage in recent years, which left staff “nauseous and too sick to work”. That is the scale of the repair job to be done in just one hospital in one Labour new town. Our public services will need extra billions for years to come.
Yet to bring in this money, Starmer and Reeves are also exposing their government to two great dangers. The first is trust: they have just unveiled the biggest tax-raising budget since Norman Lamont in 1993, after an entire election where they vowed that the only new taxes Labour would levy were the footling sums at the back of its manifesto. The fault is entirely theirs, for throwing out promises that they knew they’d have to break. Some of us pointed out that relying on an unprecedented surge of growth to pay the bills was simply not plausible. Far better to level with the public and argue that your parents getting seen by doctors or your kids getting taught in good schools requires income that ultimately means higher taxes. It is an argument that Gordon Brown made, with patience and skill, to pump money into the NHS, and it would have been better and simpler for Reeves and Starmer to have argued their case, rather than dream up stealth tax rises.
One immediate consequence is that the national insurance paid by employers will rise, with the Office for Budget Responsibility (OBR) predicting that about 75% of the cost of this will be passed on to workers as their pay is held down. Among those suffering this pay squeeze will be the teachers at your local nursery and the staff at the care home around the corner. All because Labour strategists were not willing to argue their case.
For years now, the hard right – the dark money thinktanks, the Farage-ists, GB News and TalkTV – have kindled suspicions that all politicians are self-serving liars, who will say one thing before a poll and pick your pockets directly after. Theirs has been a joyous summer of mocking Taylor Swift tickets and freebie specs, and they now have a prize exhibit. You can hear the allegation already: this lot said no new taxes, and now they are hitting you for the thick end of £40bn. That grumbling may not feature much in the posh papers or from BBC sofas, where polite people will talk about policy, but on the Facebook posts and radio phone-ins it will be loud and it will be bitter.
The second danger is that households are likely to get poorer year after year. The OBR sees a squeeze on households’ take-home pay that starts in 2025 and continues all the way until 2028. That would be painful for any society – but in a country that is only just emerging from the biggest squeeze in living standards since the Napoleonic wars, it will hit very hard indeed. Combine that with a welfare system that will remain fundamentally as cruel as it was designed to be by George Osborne and successive Tory chancellors: the two-child cap on benefits remains in place, as does the benefit cap – as does the freeze on local housing allowance, which sets how much help low-income tenants get with their rent.
Osborne’s alibi for his strategy of taking money from the poorest was to fake a divide between “skivers” and “strivers”. Labour doesn’t talk about skivers, thankfully, but it does bang on a lot about “working people”, presumably because that is the phrase permitted by its pollsters. It is a nonsense distinction, as ministers should have learned after spending much of the past fortnight trying to define the term and tying themselves in knots. About two out of five people on universal credit, for example, are in work. Yet Reeves talked of “working people” 13 times in her speech, while “inequality” in this highly unequal society did not rate a single mention and child poverty only featured once.
Such politics is classic New Labourism: trumpet your credentials as the party of “wealth creation”, while hoping to divert some loose change from the wealthy into welfare. Funnel cash into public services, while warning they must “reform or die”, as the health secretary, Wes Streeting, says of the NHS. This is trickle-down economics, and it falls apart when there isn’t much money trickling down. Among the most striking themes of this budget is how many tens of billions the state has to raise in tax and debt for a modest short-term boost to the economy. It underlines two truths of our political economy: first, talking loftily about future growth in what is a mature, low-growth economy is a nonsense. Second, trying to compromise with the right, when they have spent decades dragging you on to their territory, is for the birds. The old model of sweeteners for big business, stealth taxes on the public and hoping you’ll get away with it at the next election is clapped out. What’s needed is a new economic and social contract that recognises the UK is a mature and wealthy economy that can provide for its people, if politicians level with voters. Now that would be change.