The axe will have to fall on Britain’s runaway public spending
Rachel Reeves likes to insist that she will “never play fast and loose with the public finances.” It’s a phrase she deploys quite often, not least when it looks as if the bond market could do with a bit of reassurance, and it means that she won’t breach her “cast iron” fiscal rules.
Adherence to those rules about borrowing, debt and expenditure is important, but it’s not as simple as just declaring that “the numbers will add up.” What really matters is how they add up, and it’s becoming painfully clear that tax rises will account for the bulk of the Chancellor’s equation.
A generous reading of the financial landscape implies the government will have to find around £25bn of fiscal leeway at the Budget and a cursory reading of the political landscape implies that she won’t look to find that through spending cuts.
Huge tax rises are coming, and Reeves is working hard to pin the blame on Brexit, austerity and global instability. She’s perfectly entitled to point to two decades of stagnant wage growth and underinvestment as poor foundations on which to try and build her new economy, but she cannot avoid responsibility for high inflation, a ropey jobs market, poor business and consumer confidence and a high tax burden; these factors are holding back growth in the here and now and they have their origins in her first Budget.
Reeves targets the wealthy for tax hikes
While the blame for the £100bn we spend a year on debt interest cannot be pinned on Reeves, the additional £100bn of borrowing so far this financial year most certainly can. In short, she has played fast and loose with the public finances, with the UK economy, via a series of painful tax rises and a failure to control spending in any meaningful way. After raising taxes by £40bn last year, she’s forced herself into a position where taxes will rise again at the Budget next month.
Who is in her crosshairs? Last year it was businesses, this year she says “those with the broadest shoulders should pay their fair share.” The top 500,000 taxpayers contributed £94bn in taxes in 2023/24, 33 per cent of the total raised. The top 100,000 alone paid nearly £55bn. Exactly how broad does she think these shoulders are?
Meanwhile, after adjusting for inflation the welfare bill has risen by £45bn in the last two years, largely thanks to sickness and disability benefits and the triple-locked state pension.
Sooner or later, the axe will have to fall.