The reality is entirely different. Reeves is following a cautious approach to the predicament she’s in. Most of her actions are the result of perfectly sensible decisions. But as today’s Spring Statement showed, caution carries its own set of risks. At its worst, it can trap us in a state of economic desolation. And that’s what seems to be happening here.
During austerity, George Osborne chose to ignore the low interest rates available to him – a market basically begging him to borrow – and instead cut departmental spending to the bone, mutilating the British economic landscape.
This is why the bond markets are so jittery – because Britain has been in an economic malaise for a long time and it is struggling to lift itself out from it. Reeves is responding to that market anxiety by clinging closely to her fiscal rules in a bid to demonstrate determination.
It was not honest about the need for tax rises during the election. And now it cannot be honest about them in government. Almost everyone can see that they’re inevitable, but it cannot bring itself to say so.
Other governments, including Canada and Germany, are speaking openly about what is happening. This has won the Liberal government political support in Canada and the Christian Democrat government economic support in Germany. But Labour feels unable to do likewise.
These are the two great truths which Reeves cannot say out loud: that Trump has created a crisis and that taxes will have to go up. So instead, she battens down the hatches and hopes for the best.
square KITTY DONALDSON
Labour MPs are hoping these are the last cuts - it may be wishful thinkingRead More
The Chancellor did just enough to stay within her fiscal rules while moving a few small pieces around the board. Spending cuts got Reeves to the point where the borrowing rule was met by £9.9bn in 2029-30 – precisely the same amount as she proposed in last autumn’s Budget.
Reeves is basically just cracking on with the existing policy, then hoping that Labour’s pro-growth policies, reduced inflation and the expected lowering of the interest rate will help bring about a cyclical swing toward growth.
Another completely bog-standard revision in economic expectations could easily wipe away that headroom and force her to go through the whole godforsaken pantomime all over again. How does that reassure the markets?
There are other approaches that Labour could take.
This response would require a much closer relationship with Europe than Labour is prepared to admit. Moving closer to the EU would boost our trading prospects, our growth, our military procurement, our domestic producers and our shared defence. It would mean encouraging the American knowledge base to come to the UK – speaking directly to the experts currently being targeted by Elon Musk in US universities and public bodies and telling them to move to Britain.
It’s not Labour’s fault that we’re here. But it will be Labour’s fault if it fails to grasp the opportunities currently being presented to it. Caution carries its own set of risks. And they can be far more debilitating than those which come from excess ambition.
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