The Chancellor’s first Budget has failed to inspire confidence in Labour’s growth plan, writes TERRY MURDEN
Whenever I hear Rachel Reeves speak I find myself thinking about Michael Caine. There is something in that deep-voiced, don’t-mess-with-me south of England twang that when she stood up at the despatch box to deliver the first Budget speech by a female I was expecting her to say: “My name’s Rachel Reeves. Not a lot of people know that.”
The new Chancellor comes across as someone you are forced to hear out, or risk having both barrels of a metaphorical sawn-off shotgun pushed in your chest. She wants £25 billion paid over from business in employers’ national insurance to meet the needs of the NHS and state schools, or else there will be a difficult conversation where no one will witness the outcome.
Former Prime Minister Rishi Sunak, simultaneously delivering his last Commons speech from the Tory frontbench, dared to do the opposition’s bidding, dismantling the Budget as a series of tax rises and broken promises that would not achieve the Labour government’s goals of kickstarting growth.
Labour won July’s election by promising to stabilise the economy and spur significant growth to reverse what it terms 14 years of Tory decline and mismanagement. Instead, growth has been put on the substitute’s bench while the team falls back on Labour’s usual tax and spend game plan.
Against all Ms Reeves’s talk about investing in the industries of the future and turning Britain into a clean energy superpower, the here-and-now impact of the budget is a significant hike in the cost of doing business and financial headwinds restricting the ability of companies to plan ahead.
The higher cost of employing people has just given firms their best reason to invest in AI or employ even more lower paid, rather than skilled, workers. The risk takers – entrepreneurs – will look again at the tax implications of taking that next brave step and think that maybe it isn’t worth it.
An independent analysis by the Office for Budget Responsibility (OBR) said the Budget offered merely a “temporary” boost to the economy. While it raised its growth projection for 2024 and 2025, it lowered its forecasts from 2026 onwards. The NI hike reverses the £20 billion cut in national insurance for employees and employers announced by the Conservatives over the last year.
After months of seeing the economy gradually haul its way back to fitness, there is talk of interest rate cuts being put on hold and even going back up. From the Treasury’s perspective it means the government’s already huge borrowing charges will remain over £100 billion a year until 2029. Independent analysis suggests that the higher levels of borrowing will see inflation rise by an average of 0.6% next year.
Labour says the additional £3.4 billion handed to Holyrood should end talk of austerity and neutralise criticism of Westminster’s treatment of the devolved nations. Businesses have their eyes on getting a share of the extra money, not least to ease business rates in line with the policy south of the border.
Scottish ministers are already talking down the real value of the increase and argue that it merely eases the pain of cuts it will still need to make on 4 December.
Former Chancellor Jeremy Hunt accused the Chancellor of taking the easy route to funding her plans by “picking the pockets of businesses and raising taxes” and hurting those she promised to help: ordinary working people.
Ms Reeves has admitted that she hopes never to deliver another budget like her first, but this one has set the tone for the parliament with only a few glimmers that things will improve. There is a promise of a rise in income tax thresholds, but only in the year before the next election by which time Ms Reeves will hope the sacrifices will have been worth it.
Terry Murden was Editor and Business Editor at The Sunday Times Scotland, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business.
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