3 AUGUST 2024 | OPINION
This week featured the return of both honesty and deception to political discourse on the economy; honesty about the tight fiscal situation, deception about this being a surprise. The Chancellor admitted that spending cuts or tax rises were a fait accompli while, simultaneously, pretending that this was new information.
Labour’s election campaign was undergirded by a Ming vase strategy. Part of this was a firm pledge not to raise taxes on “working people”, designed to neutralise potentially powerful Tory attacks. This was never a strategy for governance – but Labour pretended otherwise.
Fractures in the Ming vase were inevitable, and these are now visible for all to see.
This week, the Chancellor told us that she had discovered a menacing “£22bn hole in the public finances”. It was, apparently, produced and “covered up” by the “previous government”. Beneath the surface however, this is not – entirely – the case.
Just under half of the “hole” was contrived by the new Government on the very same day as Reeves’ speech. On Monday, the Government made the political decision to accept the full recommendations of the independent pay review bodies and, in addition, afford junior doctors an inordinate rise of 22 per cent. The cost of this measure is £9.4bn, just under half of the £21.9bn figure identified as the “hole”.
The last Government already budgeted for public sector pay rises this year. The £9.4bn figure is what the Government has decided to spend in addition to existing money set aside. A huge proportion of the hole is on Labour, not the Conservatives. But Reeves pretended otherwise.
In fairness to the Chancellor, the last government budgeted for pay rises of only two per cent, considerably below the recommendations of the pay review bodies. But this isn’t a shock – it was never concealed.
In fact, back in April, NHS England acknowledged in its submission to the pay review body that funding set aside by the Treasury was only sufficient for a pay rise of 2 per cent. This information was in the public domain. It was never “covered up”.
Worse still was Reeves’ assertion that “it would be almost unprecedented to reject the recommendations of the independent pay review bodies” on the BBC Radio 4 Today Programme. This is simply untrue – the last government rejected the recommendations on many occasions.
To take one example, in 2022, the Ministry of Justice rejected the recommendations on judges’ pay and the Home Office rejected the recommendations on pay for Police and Crime Commissioners.
Half of the “hole” has been produced by the Treasury under Reeves. It was never left by the previous Government, because the decision to afford such pay rises was taken by this one. But Reeves pretended otherwise.
The truth is that the spectre of pay deals on the horizon was a known quantity. The truth is that the fiscal situation was always, transparently, tight. The truth is that Labour’s tax and spending plans were always unsustainable. But Reeves pretended otherwise.
In reality, the money not being available to spend on such measures was precisely why the last government did not implement them. In fact, this is no more than an expression of the incoming Government’s frustration that the money to implement their desired measures simply was not ever there, without further borrowing and/or taxation – but it is entirely disingenuous to assert now that they could not possibly have been aware of that.
The decision to implement these pay recommendations was a political choice, for which the Government must take full responsibility. It was additional spending that they committed to, just like the new £8.3bn in funding for Great British Energy that they have announced. But Reeves pretended otherwise.
When Sir Keir Starmer was Leader of the Opposition, he condemned “gimmicks” as an approach to policy, citing the Rwanda scheme. Now that he is Prime Minister, his Chancellor has committed a further £8.3bn of spending to a gimmick of their own.
Indeed, the Chancellor has manifestly resolved on the politics of deception; she has crafted a narrative to absolve responsibility for the wave of incoming tax rises and spending cuts. The most gaping black hole of all exists not in the public finances, but in the Chancellor’s reasoning.
It is clear that Labour were dishonest about their tax and spend plans during the election campaign. Now, Rachel Reeves has crystallised deception as their political modus operandi when it comes to the economy.
Move along… nothing to see here!
