There was something comfortingly “normal” about today’s Budget. It was not blighted by Brexit, Covid or Tory party internal politics: instead we returned to a traditional delivery of a Budget by a left-of-centre party opposed by a right-of-centre opposition.
For a few years now I have bemoaned the government’s policy of “austerity” which has got us nowhere other than to cripple public services, reduce real wages for the average worker, kill national investment and throw a wet blanket over our “animal spirits”. I was therefore relieved to hear the new Chancellor adapt Tony Blair’s mantra of “Education, education, education” into “Invest, invest, invest”.
In the run up to this Autumn Budget, Labour had been shouting “Tory profligacy” from every mountain and hilltop in Britain, so it was no surprise that Rachel Reeves opened with another reference to the fiscal “black hole” that she had inherited from her predecessor. In fact, she was so confident of the facts that she promised a line-by-line breakdown of the £20 billion deficit. I suspect the “black hole” is real and explains why Rishi Sunak announced an early General Election rather than wait for better economic data as the Conservatives would, by now, be scratching around for credible answers to the larger-than-expected deficit and, like Liz Truss and Kwasi Kwarteng in the autumn of 2022, incurring the ire of the OBR (Office for Budgetary Responsibility) and a vote of ‘no confidence’ from markets in the form of significantly higher gilt yields.
Rachel Reeves initially appeared nervous delivering her first Budget as Chancellor, but quickly got into her stride and was fast to warn that an additional £40 billion in taxation would be necessary to remedy the deficit she had inherited and meet her government’s manifesto promises. As Labour is committed to supporting “working people”, there was no way that she would pass the burden of the extra tax onto the shoulders of the ordinary taxpayer, instead employers will feel the brunt of the new taxes, with employer National Insurance rising by 1.2% to 15%, whilst at the same time reducing the threshold to £5,000.
There were a range of other tax changes to ease the cost-of-living burden on lower paid workers, which we will go into more detail on by the end of the week. In the interim, it is refreshing to see a change in direction of the UK’s fiscal strategy, despite this budget putting a sizeable dent in my own finances.
For those of you that claim the huge rise in employers National Insurance is a tax on employment, you are probably right. But that may be exactly what the government wants because it will encourage companies to increase capacity through investment in new equipment and technology rather than taking on additional workers which, in turn, will boost productivity and, perhaps, enable the UK to deliver some decent economic growth over the next decade. I would not be surprised to hear new Labour’s 1997 “Things can only get better” anthem booming out from 10 and 11 Downing Street this evening. If so, let’s hope it’s right and “D:Ream on” (excuse the pun!).