Reeves invoked fiscal black holes in vain, and how they are flocking to the Treasury’s door
HENRY HILL
This column ought probably, in the normal run of things, have been about the Sun’s report that Kemi Badenoch has braced the Conservative Party not to have any policy announcements for at least the next two years as she focuses on “rebuilding trust”.
But we already wrote that TD, on Monday. So let’s put a pin in that story and update ourselves once more on how extraordinarily bad things are looking for Rachel Reeves. It has been over a fortnight since we last did that.
The latest dark cloud on the Chancellor’s dark and stormy horizon is gilts, a word readers may remember from the Liz Truss implosion. They’re at record highs.
Now this isn’t anything as drearily partisan as claiming this is therefore worse than the Mini-Budget and why doesn’t Reeves resign already; Sky’s Ed Conway does a good job of setting out why the 2022 spike had exceptional characteristics not present how.
But it is nonetheless a bleak augury for Labour. The Chancellor’s plans were already cutting things very fine with regards to so-called fiscal headroom – and she made a deliberate decision to increase borrowing – and now five-year gilts are already one per cent higher than the OBR forecast they would be back in October.
All this means the cost of servicing government debt is rising, and that means more pressure on budgets. Per the Treasury’s coded warning, we may well be in for another round of austerity.
The Government could try simply pencilling in terrible cuts for the never-never, as was the Conservatives’ preferred solution. But don’t forget that Reeves has already started doing that: central to her claim that her last surprise tax increase (employers’ NI contributions) was definitely the last one was the pledge that she has presented a complete fiscal plan for the whole of this parliament – and that includes several lean years in the latter half of it that were already implausible.
Her hope was clearly that by then we would have growth, somehow, and thus politics could return to its happy norm of divvying out slices of a slowly-growing pie. But there’s nowhere such growth seems likely to come from; Labour’s plans for housing have been far too unambitious to start getting a substantial volume of homes built by the very end of this parliament at the earliest, and there are no long-term infrastructure projects (such as the Elizabeth Line) that could come on-stream.
Then there are all the other traps which Reeves has dug for herself. We wrote a couple of weeks ago about Fuel Duty, and how the Government’s refusal to commit to raising it created a £4bn black hole in its finances. To that list we can now add social care.
But, you might be thinking, the Government hasn’t got any plans for social care. It has charged Dame Louise Casey to come up with some, and her review will report “by 2028”. That’s the problem. For as the Government currently has no social care plans, those plans have no costs.
That means that the OBR can’t include it in its upcoming Economic and Fiscal Outlook (EFO) in March. As a result, that document and all succeeding ones are almost certain to be wrong, as their forecast period will exceed the 2028/29 deadline when the Government says it is planning to do something about social care. Nor can it be included in departmental calculations for the next spending review.
As a result, when Dame Louise does finally descend the mountain bearing her tablets of stone, the Government will have a few, universally bad, options. It will either have to implement a raft of pre-election tax rises, fight the next election promising those tax rises, or fight the election with a social-care-sized hole in its numbers (which in practice means lying about tax rises). And lo.
You do have to feel for the huge new intake of Labour MPs. Swept into office as part of the largest Commons majority in history, their leadership kicked things off by retaining the two-child limit, means-testing the Winter Fuel Allowance, and reneging on (foolish) promises to the WASPI women. And rather than jam tomorrow, there’s just more of the same, forever.
The question for the Conservatives, however, remains that should they return to office they will face the exact same set of circumstances. Last time, we met them by introducing vast stealth taxes whilst calling exemptions “tax cuts” whilst the prime minister kept himself busy with personal projects such as overhauling A Levels and cancelling HS2.
If “rebuilding trust” means anything, it must mean reassuring voters that we won’t do the same thing again. That will require at minimum a detailed diagnosis for what ails Britain, and why we failed to head things off when we were in power. Precisely the sort of difficult conversation, in other words, that those praising Badenoch for sticking to “values” are keen to avoid.
This article (Reeves invoked fiscal black holes in vain, and how they are flocking to the Treasury’s door) was created and published by Conservative Home and is republished here under “Fair Use” with attribution to the author Henry Hill
Featured image: fmamfg.org
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