I think it would be a good idea for me to start this simple critique by once and for all, dealing with the hyperboles, general criticisms and observations of Chancellor Reeves’s second Budget, delivered in a highly charged atmosphere at 12.30pm yesterday. Let’s start with the OBR’S unfortunate leak before the Chancellor got to her feet in the House of Commons – easy! Outrageous! Richard Hughes should have the drains up and ‘heads should roll.’
The Chancellor and her team are totally responsible the hostile atmosphere created by leak after leak manifesting itself from all quarters of Westminster, the press and social media by giving three months’ notice in setting the date for the Budget.
Speculation has been rife and controversial since September about its content. Will the Chancellor be able to deliver fiscal stability? Is the economy about to enter a soft period? Is income tax on the agenda? – Yes! No! Which taxes will the Government levy? This level of speculation would never have happened under Ken Clarke or Gordon Brown, when they were Chancellor. Then again they did not have social media to deal with. The public, in trying to peer with an unacceptable level of hysteria, were beginning to think that growth was disappearing in a puff of smoke.
Inflation has remained high, with the cost of food continuing to rally above the average inflation rate of 3.6%. The draconian level of employers’ NI taxation at the last Budget has contributed to the increased level of unemployment to an eye-watering 5%. The Bank of England’s MPC have a conundrum to deal with. Should rates be cut further, after 5 cuts to 4% have been implemented since July of last year? Logically, the answer is probably not.
Will the Chancellor slash public expenditure or no? That made the gilt market wobble on more than one occasion. As it happens, the market seemed quite happy with the Budget, as the Chancellor looked to have found some head room of £21.8 billion by the end of the Parliament. This meant that her fiscal disciplines had been met.
Now, what goodies came the way of the general public. Welfare received a further £12 billion boost, much of it by way of the two child benefit cap being ditched. Minimum wage and living wages were increased at levels between 4.1% and 8%, depended on the age of the recipients. That was great and maybe necessary for the poorly paid, but it delivered a hammer blow to retail, construction and entertainment.
Small retailers had a small result in terms of business rates with the likes of large on-line employers such as Amazon picking up the tab. Every time, the Government raises pay levels, however necessary, employers think twice - not only about expanding their operations, but also whether they should let employees go.
This Government just does not seem to understand the ramifications. The new Rayner employment laws don’t help either. They are also a deterrent. The current affect is negative. At the last Budget taxes went up by £40 billion. Yesterday’s included £26 billion of tax hikes, though some of this legislation may not be implemented until 2027 or later. This is heavy duty for taxpayers
Under Tony Blair, Labour softened its attitude towards wealth. Blair’s government was enthusiastic about business and realised its influence and potential power. Today Chancellor Reeves is passionate and seems to care deeply for the less well off. However, she clearly does not understand that she needs the influence of business, with investment incentives, to make it work.
Labour, sadly has no ministers with any business experience and therefore they appear deaf and unsympathetic to what is required to crank up economic activity, leading to growth.
Many were pleasantly surprised at a few of the Government’s plans for public investment in a number of schemes such as nuclear power and ‘AI.’ However, these are all futuristic ideals, which are unlikely to affect any immediate and positive response to growth. The three-year stamp duty relief for fresh IPOS on the London Stock Exchange was welcome, but it is of only peripheral benefit.
Taxation on pensions is insane. The Chancellor must know that no government will be able to sustain public pensions at the current level in the future. It is an unaffordable cost. So, everyone needs to make their own provisions for the future. So this visceral tax just shows the lack of understanding as what is required to stop a wave of business people leaving these shores for greater opportunities elsewhere. Already over 10,000 millionaires have left. The number will increase. There is no point adopting the attitude of ‘see if I care.’ The fact remains wealth creates jobs and employment to pay for our bloated public sector.
Chancellor Reeves met her match in Kemi Badenoch at the despatch box yesterday, responding on behalf of the opposition to the content of the Budget. Ms Badenoch was ruthless in her condemnation of the lack of growth and the poor outlook for the economy. It was a fine speech, with great content and sensible criticism.
The OBR’S Richard Hughes made it clear, that despite decent planning for the future and the availability of public investment, there was nothing in the Budget that would stimulate any immediate growth prospects.
As an observer, I saw nothing that captured my imagination that this was a Budget for growth. Until Labour realises that heavy cuts in public expenditure are a pre-requisite and must be implemented, growth will remain on the ‘subs’ bench.
David Buik is a commentator on the City of London
