KEIR STARMER and Rachel Reeves have blundered into a trap entirely of their own making. Their desperation to appease big business has now left them at odds over the government’s tax and borrowing plans.
Labour was elected on the basis of incompatible promises, as this newspaper and others pointed out before the general election. It pledged, firstly, not to return to austerity and, moreover, to improve battered public services.
Second, it committed to cutting public debt by the end of this parliament in 2029. And finally, it swore not to increase taxation — not just basic income tax, National Insurance on employees and VAT, but also top rate tax and corporation tax. Nor would there be a wealth tax.
Not six months into office, these incompatible pledges are boxing the government in. The magic invocation of “growth” as the answer to the self-imposed straitjacket has, predictably, proved inadequate.
Given the lack of any strategy to promote expansion other than planning reform, it is very likely that economic growth will be too little and certain that it will be too late.
The Chancellor’s Budget, after elaborate parsing of the meaning of the phrase “working people”, raised employers’ National Insurance contributions and also ended the exemption of farmland from inheritance tax, provoking visible and voluble resistance.
Reeves also fiddled with borrowing rules to allow the state to recalibrate its accounts.
She and Starmer have further upset the big capitalists by overdoing the doom-and-gloom, “talking down” Britain as a place to invest.
Panicked, Reeves went to the conference of the bosses’ organisation the CBI, determined to woo big business all over again, which her Blairite instincts would have anyway prompted.
She told the assembled bourgeois that “I’m not coming back with more borrowing or more taxes.” This could only be understood as a further commitment covering the present parliament to not further raise any taxes at all and not increase borrowing limits either.
The main practical consequence of such an announcement is to make an explicit return to austerity, more than likely, since independent experts already believe that real-term cuts in spending on public services will be needed on present projections within a year or two.
Renewed austerity — and we have seen the first indications with the axing of the winter fuel benefit for millions of pensioners and the rise in the bus fare cap — would also break an election promise, albeit not one made to the Establishment, so less important to Reeves.
However, her CBI performance appears to have been too much for Starmer, who conspicuously failed to endorse her pledge in the Commons.
The Prime Minister does not want to see all his wriggle room evaporate so early. But he is caught on the horns of the classic social democratic dilemma, trying to keep the masses on side while also giving big capital all it wants.
He would do better to level with the electorate — the public services they expect cannot be created without an increase in spending, which should be funded by the wealthy and big business.
Of course, there would be howls of protest from the City and its tame press. But they are howling anyway, and trying to appease them is a fool’s errand.
It may also be such an errand to expect Starmer to change course. But the Labour conference made clear that it wants a wealth tax, a more determined approach to growth and investment and a reversal of the winter fuel cut.
The unions must keep that pressure up. The Downing Street contradiction between No 10 and No 11 demands a fundamental shift in strategy.
