This is what it’s like to experience ideological trauma
October 30, 2024 4:34 pm(Updated 4:54 pm)
This was an immense work of economic authorship. It was, barring wars or pandemics, the most consequential Budget we will see for the next five years, and possibly for the next 10. It was a document that made extensive, high-stakes changes in the assumptions of British politics. And it was the single clearest statement we’ve had so far about what this Labour Government is all about.
In the interminable months leading up to the event, Keir Starmer and Rachel Reeves laid down a gloomy narrative of hard choices and suffering. It was proper Game of Thrones “winter is coming” stuff.
That narrative had various functions. First, it was a self-interested political gambit, allowing Labour to blame the Conservatives for the mess they inherited. This was a cynical ploy, but it was a cynical ploy based on a fundamental truth: the Conservatives really had governed with a historic degree of ineptitude and irresponsibility. An Office for Budget Responsibility document published today contained the devastating revelation that the Tories had kept information from the organisation in the last Spring Budget. The Labour accusation about the financial black hole has been independently verified, even if we can quibble about the real size of it, or how honest Labour was about the obvious state of the public finances during the election campaign.
The second function was economic. It was about the bond markets. The disastrous reaction to the Liz Truss mini-Budget a couple of years ago genuinely frightened Labour. Reeves had to present herself as a symbol of fiscal rectitude to make sure it doesn’t happen again, particularly given that she was planning to significantly increase borrowing.
Economic policy-making is not just about numbers. It is also about storytelling, perhaps even predominantly so. And that is precisely what she did over the last few weeks. She told a story that presented her as grave and reliable, which would in turn influence perception, which would then influence the market reaction to her more radical policy decisions.
She emphasised this image with the rule she unveiled today on current spending. It states that day-to-day costs must be met by revenue, rather than borrowing. It applies to all sorts of things, including welfare and services. It’s perfectly sensible. A state doesn’t want to borrow to pay welfare costs any more than an individual wants to borrow to pay for shopping costs.
Combined with the black hole left by the Conservatives, that leaves Reeves having to put up taxes, which she promptly did to the tune of a massive £40bn, including really quite substantial rises in employers’ national insurance, stamp duty on second homes, the closure of various inheritance tax loopholes, and an increase in capital gains. In each case, these are paid by businesses, or investors, or the wealthy.
With that image of fiscal rectitude nailed down, Reeves then did something interesting. She rewrote the fiscal rules to allow for higher degrees of borrowing and investment. There would be more money for housing, infrastructure, factories, hospitals. Most importantly, a whopping £6.7bn in capital investment for the Department of Education and £22bn for the NHS. It’s been a long time since we’ve seen this kind of money being spent on public services.
The Conservatives naturally condemned all this as some sort of socialist insurgency. Rishi Sunak’s response in the Commons – his last outing as leader before his replacement is elected on Saturday – seemed to actually shimmer with rage. He was as angry as we’ve ever seen him. The whole of the Tory parliament party was, actually – especially when the provisions on inheritance tax on agricultural land were read out. This is what it’s like to experience ideological trauma. The Tories have forgotten the feeling, having been in power so long. They’re now having to get used to it again.
We will also likely see attacks from the left criticising the restraint in current spending, including former Labour MPs who were thrown out of the party over the two-child benefit limit and Green MPs on the other side of the Chamber. But they, unlike Reeves, do not have to worry about the bond market. They need not concern themselves with how it will react. They do not need to grapple with the harrowing memory of a couple years ago, and what that suggests about the fragility of our current situation.
In the end, the Budget offered a pretty clear picture of this government’s moral vision. Starmer and Reeves are concerned with workers, and in particular with the dignity of work. They believe in state intervention in the economy. They believe in borrowing to invest. They believe in well-funded public services, paid for by taxes on the wealthy. They are quite a bit more left wing than Tony Blair, or even Gordon Brown. But they are both naturally cautious, pragmatic and structured in their approach.
These are the instincts which defined the document we saw today, and which will define the Government over the next five years.