Labour’s Economic ‘Pain for Gain’ Argument is Unravelling

Having branded George Osborne’s 2012 Budget the “omnishambles” (and let’s face it, most of us can only now remember the row about pasties) they then made understandable hay with the effects of Liz Truss’ mini budget, so the temptation for Conservatives to chalk this Labour one up as a hopeless messaging operation, is huge.

However, as several commentators, including myself, have written on this site, Labour are in the early months of a Parliament, they still have time to put things right, to fix the dreadful communications and start to do things that are harder to rail against. Two things are clear for the Conservatives: they can’t just hope Labour will keep misstepping, and they have to get their own house in order to capitalise on the Government’s mistakes.

So let us, for a moment assume that some measures in the Budget, might bear fruit. It’s a tricky assumption because most of the pushback from retailers, charities, the care sector, farmers, small businesses, pensioners, entrepreneurs and parents all fit, remarkably, under one umbrella: you can’t tax your way to economic growth.

Nonetheless, let’s imagine that some of the measures have some upsides they can sell to the British people. What I struggle to understand is why take so much pain, for so little obvious gain? It would make sense if the gain was tantalisingly huge for all to see, but it isn’t.

The principal objective of this Labour Government, we are told, is to boost economic growth. Laudable aim.

Having seen the credibility gap created in the latter years of the Conservative government, Labour went all out to burnish their economic competency credentials, even attempting to woo the very people they have just hit hardest, the private sector. In doing so there seems a good deal of agreement now, that they’ve also hit that group they promised not to – “working people”. Intentionally or not, everybody seems to be taking the pain.

Though he was no longer being listened to by most voters, Rishi Sunak warned at the election that with Labour: ‘you name it, they’ll tax it’. He turned out to be right. Labour have argued that when the difficult stuff is done, things will slowly get better for everyone. That already seems in doubt.

Rachel Reeves told us herself, even as she unleashed her gargantuan tax grab, what the growth projections were for the next five years. To say they were underwhelming would be an economic understatement. All that pain for so little gain?

In prompting lasting anger, some of it from unions, with the cutting of winter fuel payments from 10 million pensioners, the proposed gain was expected to be around £1.4bn. The DWP published a report last week claiming 100,000 more pensioners face relative poverty by 2027 due to the policy. Labour say they can ameliorate this by pushing for those pensioners entitled to claim pension credit to do so. If they all did, the total cost of paying out this unclaimed money would be about £2.2bn a year – so all the pain might save nothing at all.

The biggest hit of all was the rise in employer national insurance contributions. Reeves clearly did not think this was a breach of a manifesto that said Labour would not put up national insurance contributions. Even if we put that to one side, the reality is not so much the financial boost to public services that Labour, and a good deal of the public want, but a future for employers and employees of fewer jobs on offer and some businesses closing altogether.

Inflation went up by far more than expected last month and whilst Angela Rayner mentioned at PMQs last week the 11 percent level post mini-Budget, she sidestepped that Rishi Sunak’s government brought it down to 2 per cent.

If so few farmers are really going to be hit buy the rise in inheritance tax, why are so many of them convinced they will be? Why pick a fight with a group in society, you know people think you don’t understand or like, to raise half a billion. That’s a ’rounding up error’ in the budget of the DWP, and NHS.

So far, though they have time to change the outcome, the pain for gain argument is being lost by Number 10. In a project designed to boost growth, the only thing that has noticeably grown is the cost of it to millions of Britons – and their annoyance.

I never thought the Government was stupid, even if I disagreed with what they were offering. But by any standards, persuading people to tighten their belts to get what will at best be mediocre growth, and disputed savings, seems a bad place to be – for any kind of economist.

The Chancellor did lay what I think Labour thought was a clever trap.

On the face of it, it’s trap that undoubtedly has risks for the Conservatives: ‘Back our tax rises to support public services or tell the public what you would cut’.

Better functioning public services are a priority for most voters, but the trap is predicated on thinking the only way you improve public services is to throw ever more money at them. That’s why it’s right the Conservatives keep asking, for every inflation busting pay rise to the unions, what reforms or efficiencies did you ask for in return?

The answer is nothing.

If growth doesn’t come, and Labour stick rigidly to their plan, the hunt for more tax rises will continue.

Either the Conservatives are going to be horribly stunned at how big tax rises do, against all odds, lead to higher economic growth – or Labour risk soaking up even more political pain, and end up having exactly ‘nothing’ to show for it.

This article (Labour’s economic ‘pain for gain’ argument is unravelling) was created and published by Conservative Home and is republished here under “Fair Use” with attribution to the author Giles Dilnot.