It’s now the consensus that the decision to schedule the Budget a month later than necessary has caused economic damage. The Bank of England’s former chief economist Andy Haldane told the BBC on Sunday that the resulting “fiscal fandango” is “the single biggest reason why growth has flatlined”.
The Government blames anonymous “leaks”. However, this ignores the uncomfortable truth that Chancellor Rachel Reeves herself has been the chief source of both speculation and teasers about Wednesday’s speech.
Despite strict rules against pre-briefing the contents of a Budget, Reeves and her team have actively invited speculation about all sorts of fiscal measures.
At times, it has even appeared that their approach is a massive brainstorm and focus group exercise, leading voters and the markets in an unedifying hokey-cokey on income tax, inheritance tax, wealth taxes, tax thresholds, pensions taxation, VAT, tuition fees and more.
As well as an insult to the House of Commons and a snub to convention, it’s an unwise approach to economic management.
As Haldane says, consumers and business decision-makers feel trapped. All through the economy, wallets and investment budgets have slammed shut as people conclude they must wait until Reeves sits down on Wednesday afternoon in order to be sure of the rules and environment they are operating in.
The whole farrago speaks of indecision and a lack of strategy.
That uncertainty gives the impression of a cowardly Treasury, which is sufficiently unsure of its motives that it keeps running away from ideas that it suggested in the first place, like raising income tax.
The so-called “mansion tax” is the latest example. After going through various iterations, this is still being redrafted and tinkered with just days out from the Budget.
Back in August, it was reported that Reeves might apply capital gains tax to higher-value family homes. By October, she was mulling an annual levy on a percentage of the value of homes over a certain level. As recently as last week, this had transmuted into a revaluation of council tax bands, with a supercharged tax rate for homes worth over £1.5m.
Now, after realising that there are quite a lot of houses, particularly in London, which fall into that category but which are a long way from the status of “mansion” – many occupied by people who are asset-rich but are cash-poor – we are told that the threshold will be £2m instead. Who knows if it will change again by Wednesday.
The result is a dog’s dinner. A confusing tax, raising less than previously advertised, levied for unclear reasons – which won’t come in for years – and even then only after a complex and controversial rebanding and revaluing exercise.
Why is the Chancellor like this? There are two explanations, and neither is encouraging.
The first is that this may just be her instinctive approach to fiscal policy. Perhaps she prefers to tinker at the edges rather than to set out clear, top-line goals and then drive them into effect. She seems to see no problem with tax complexity, so she is content to add further twists and tangles to our mammoth 23,000-page tax code for little financial benefit.
There may be some truth in this, but it surely cannot be the whole story. Reeves is a senior politician in a hugely important job. Even if her instincts were to rearrange deckchairs on the Titanic, and even if she were so averse to controversy that she preferred to display public indecision, surely once the pain of that approach becomes clear, you’d learn the lesson and change tack?
The second explanation is that she is utterly hamstrung by the compromised political position of the Government.
Labour’s manifesto imposed tight constraints on her fiscal options – far more than many of her predecessors would ever have accepted. That was deemed necessary to neutralise the party’s poor reputation when it comes to raising taxes, and in return, the rest of the Government was meant to practice spending restraint.
Her own decision to raise the jobs tax in last year’s Budget, combined with dogmatic measures like the Employment Rights Bill, have blunted the economy and made her job far harder. But the Prime Minister and his Whips also haven’t kept up their side of the bargain, either. By losing authority over their own backbenches through the mishandling of the winter fuel allowance and then welfare reforms, they have failed to bring Reeves the savings that she would require to abide by the manifesto.
Mere months have passed between the Chancellor and her Cabinet colleagues lecturing MPs on the importance of restraining their left-wing instincts in order to guarantee fiscal responsibility, and the very same ministers bringing forward a mess of a “mansion tax” as red meat to appease the MPs they once sought to rein in.
Just as the political power has shifted from Downing Street to the backbenches, the fiscal plan has turned to dust. The result is this push-me-pull-you of a Budget, written on the hoof.
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All pretence of consistency has gone out of the window. Even while we’re still being told about tough choices, the necessity of tax rises and the value of preserving fiscal headroom, it appears the Chancellor has signed off on a multi-billion splurge on subsidising train tickets and abolishing the two-child benefits cap.
Is money tight, or is there plenty to go around? Is growth the priority, to be able to afford the state Labour wants or is the economy an afterthought to regulating more and growing the welfare bill?
Nobody seems to know. The only certainty visible is the grim confidence of businesses and voters that we will have a hefty bill to foot.
