Kicking the can down the road: UK Autumn Budget

Yacine El Bachir

London, UK

Rachel Reeves' official portrait / https://members.parliament.uk/member/4031/portrait

Disclaimer: This is not an attack on only Labour, as the Tories suffer many of the same flaws and would no doubt do similarly poorly. It is just that criticising the Tories seems rather like shooting a dead horse at this point (beating did not quite seem to make for a strong enough simile).

Labour repeatedly pledged during the election campaign to not raise taxes on ‘working people’, insofar as they ruled out raising National Insurance Contributions, income tax, and VAT. They have (on the whole) stuck to this – that is, apart from some deft word ballet by the Chancellor, Rachel Reeves, on National Insurance Contributions. On the face of it, their recent Autumn Budget contained a vast raft of measures and changes, amounting to a £70bn spending and £40bn tax increase a year. This raises an already record-breaking tax burden to a new high. And yet, this budget was fundamentally a continuity budget: continuity for the fiscal policy Britain has pursued for the last 15 years; continuity for public sector deterioration; a continuation of decline.

Now, you may ask – with some justification – how can this budget – a budget thatwhich broke records – have possibly been anything other than historic? Well, firstly, this seemingly shocking rise in taxes and spending is in fact simply a continuation of the sharp increases we already saw under the last government. True, spending over the next 2 years is to rise by an average of 3.4% a year. But read within historical context, this is merely quite fast; not exactly groundbreaking.

However, even if spending was set to rise meteorically after this budget, cash is not the only lever of government. Other policy tools such as reform were almost entirely absent: apart from a controversial change to reduce the extent to which farm and business assets are protected from inheritance tax – which threatens to destroy the business model of small family farms – there was not much effort to eliminate much of the clunkiness of our tax code.

There was no attempt at much-needed reform of capital gains tax, and raising employer national insurance contributions takes the tax system in the wrong direction, as it increases the gap between the taxation of income from employment and other forms of income. Moreover, the failure even to index fuel duties, as well as the incomprehensible choice to raise stamp duty, meant that, on the topic of tax, this budget seemed like a “one step forward, two steps back” situation (minus the step forward).

What is worth credit is the government’s choice to increase planned investment spending deserves credit. This, in the face of tight public finances, is laudable, – particularly considering that past governments have often chosen to sacrifice capital investment in favour of protecting public services or cutting taxes in the short-term. However, even here, the budget felt sparse in progress. Apart from more money for net zero and to build schools and hospitals, there was not much else. Nothing serious on planning; nothing serious on trade; nor on competition, education, regulation, or, as we mentioned before, tax reform. For a government focused on growth, this is concerning.

So, to circle back, the real main focus of this budget – rather than being growth – seems to have been protecting public services in the short-term. This is a budget which kicks several cans down the road, whilst giving the public sector what is hopefully enough of an adrenaline boost to be able to stagger along after them. This is understandable. MI think most people recognizerecognise and accept that public finances are tight, and that public services needneeded a boost. But even here, Labour has stopped short of anything really radical. In fact, while they plan to raise spending by 3.4% this year and the next, after that it is expected to fall to 1.3%. Which, when one accounts for inflation, will probably mean spending cuts, particularly outside core services such as health and defense.

Perhaps we should be charitable. After all, it is still only early days. However, Labour has promised big: big on public services, big on delivery, and big on growth. This budget has failed to deliver that.