Rachel Reeves lied about tax. This is not unusual. Every chancellor lies about tax, going back at least to Geoffrey Howe. We’ve been lying to ourselves about tax, as a country, for decades. The difference is that Reeves is now finally telling the truth.
One of the most pernicious effects of Thatcherism was to obliterate any realistic conversation about taxation in Britain. During the long years of Conservative government in the 1980s and early 90s, a new political maxim took hold: raising taxes is bad, lowering taxes is good. Eventually, Labour embraced this view too, as a core electoral principle, a universally held truth.
This would be fine if Britain was prepared to have poor public services, but it isn’t. So now our national debate takes place on an infantilised level, with the political parties promising voters low taxes and great public services and then privately anguishing over how it is possible to govern when you can’t speak honestly about mathematical reality.
Politicians have become afraid to even touch on the subject of tax. Over the years, this has mangled the tax system into an irrational, impenetrable mess.
Why is council tax based on three-decade old valuations? Why does the marginal tax rate go into spasm for families between roughly £50,000 and £125,000, rising and falling like a series of waves rather than progressing upwards incrementally? Why is there VAT on potato crisps but not tortilla chips?
The answer is always the same: because politicians are afraid to raise tax, or undertake tax reform, or indeed touch it in any way other than lowering it. They have therefore allowed it to become an arcane, opaque, lunatic system of contradictory incentives.
Politicians deserve much of the blame for this, but there’s more than enough to go round, so let’s allocate at least some to the press. Journalists often make little effort to explain the trade-offs of tax policy to their readers. Whenever a tax change is introduced, they tend to ignore the winners and focus remorselessly on the losers.
Council-tax rates stay the same because politicians know that any change will result in screaming press coverage about an old woman in Hampshire, with little liquidity, who can no longer afford to live in the big stately home which has been in her family for generations. Because of this rare example, people in modest homes across the country pay more than they should and people in luxurious homes pay much less than they should.
During the last year of the Conservative government, chancellor Jeremy Hunt offered his own personal contribution to the national fairy-story about tax. He cut national insurance – not once but twice. It was perfectly obvious this was unaffordable. He knew it. Labour knew it. Even their pets probably knew it. But it was “good politics”.
Hunt tried to set a trap for Labour by forcing them to choose between two outcomes. If they rejected the tax cut, they would have to go into the election with a policy of tax rises. If they accepted the tax cut they would sabotage the national finances and undermine their first year in government.
The first option was brave and risky, the second was cowardly and irresponsible. Needless to say Labour went for the latter and promised not to raise national insurance, income tax or VAT.
After the election, two separate moments provided an opportunity to change course. In February, Donald Trump bullied and humiliated Volodymyr Zelensky in the Oval Office. Then in April, Trump announced his “Liberation Day” tariffs.
Both represented a material change in circumstances from when Labour made the tax pledge. Now it could truthfully argue that the world had changed. It needed to adopt an increasingly autonomous security posture from the US and to operate in a dog-eat-dog global trading climate where domestic industries would get hammered. Taxes therefore had to rise.
Instead, Reeves actually did the opposite. She left herself precious little room to manoeuvre at the last Budget then made the head-bangingly egregious error of committing once again to no further tax rises when it must have been perfectly obvious to her that they were a very real possibility. She failed to take the opportunities in front of her and then repeated her mistakes all over again.
This week, the Chancellor has turned over a new leaf. In a highly unusual pre-Budget speech on Tuesday, she made clear, without quite saying so explicitly, that taxes would have to go up. “We were elected on a commitment to put country before party, the national interest before political calculation,” she said. “We will not be swayed from that.”
This is absolute hogwash, of course. She put party above country when she signed up to Tory tax cuts she knew were unaffordable. If she really wanted the reputation of a principled truth-teller, she should have spoken honestly when it was difficult, not now that it is inescapable.
But there is no point dwelling on the past, or moaning about spineless politicians. It accomplishes nothing and it distracts us from the opportunities which have fallen into our lap. We are suddenly in a very unusual position. We might actually be about to get an honest conversation about taxation in this country.
All the usual suspects are now going to scream blue murder. The Tories will claim betrayal. The press will largely deliver one-note mindless hysteria. But perhaps, if we’re lucky, there’s a public mood out there which is prepared to hear a realistic message about the state of the country.
Reeves may have only discovered bravery after sampling every possible variation of cowardice on the way, but she has at least got there in the end. We should all hope she succeeds. We urgently need her to do so, for the sake of our rationality as well as our national finances.
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