In modern political discourse, everything is denied until it happens. The winter fuel U-turn wasn’t happening, until it did. Partygate never happened, until it did. Tax rises aren’t happening, until they’re announced.
It’s not a particular failing of this Government. One of Rishi Sunak’s team once denied the Windsor Framework deal was done. It unravelled the thorny question of the Brexit-era Northern Ireland Protocol. They denied it was done even as the former prime minister was in the car on the way to sign the agreement. I suppose technically the deal hadn’t been done; he hadn’t got his biro out.
After Labour’s spending splurge on Wednesday, economists now seem all but united in their view the Chancellor will have to raise taxes in her autumn Budget to maintain levels of expenditure. That’s even before the Government makes the jump from spending 2.6 per cent of GDP on defence in 2027 to its aim of 3 per cent in the next parliament.
“Ms Reeves is now going to have all her fingers and all her toes crossed, hoping that the OBR [Office for Budget Responsibility] will not be downgrading their forecasts in the autumn. With spending plans set, and ‘ironclad’ fiscal rules being met by a gnat’s whisker, any move in the wrong direction will almost certainly spark more tax rises,” Paul Johnson, of the Institute for Fiscal Studies, said on Thursday.
Earlier on Thursday, Reeves did a broadcast round of TV and radio stations. “Will there be tax rises?” every single interviewer asked. In this discourse, nothing happens until it does.
To be fair to Reeves, she’s just completed a spending review and won’t have started work on the autumn Budget yet. She will be hoping the OBR scores her projects up and not down to boost her growth numbers. But no one watching or listening to her set of interviews could be left in much doubt as to what is coming.
After Health Secretary Wes Streeting managed a break in the sun in the run-up to the spending review, Reeves took to archly asking other Cabinet colleagues if they were planning on taking holidays too. Streeting, still tanned this week from his jaunt, has taken to joking he’s been basking in the warm glow of His Majesty’s Treasury.
That’s the narrative the Government is spinning behind the winter fuel U-turn: that it’s only possible now they’ve stabilised the public finances. But is that even true? It depends, as ever, on which measure you use.
Reeves’ changes to national insurance contributions have hit the retail and hospitality sectors especially hard. Employment has fallen by the most in five years, with 109,000 jobs shed in May, according to Office for National Statistics figures published this week.
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There are also ambitious targets to reduce waste. A total of £14bn of “annual efficiency gains” were identified, £2bn more than had been expected. They will have to be found otherwise the Government will tip into overspending.
But the morning after, data showed the economy suffered an unexpectedly sharp slowdown in April. Reeves dismissed these monthly figures as “notoriously volatile” saying it was a challenging month because of Donald Trump’s tariffs. Business surveys are “all ticking up” and “confidence is returning,” she assured the BBC.
This is a Labour Party which has shown itself allergic to spending cuts – the Government is poised for a rebellion on its welfare plans in mid-July. At that point, tax rises may be the only way out. Just don’t ask about them in advance. Don’t let Schrödinger’s cat out of the box. Nothing is true until it happens, especially tax hikes.
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