The Biggest Deceptive Aspect of the Chancellor's Economic Statement? Who It Was Really For.
The accusation is a serious one: that Rachel Reeves may have deceived Britons, frightening them into accepting billions in extra taxes that would be spent on higher welfare payments. While hyperbolic, this isn't usual political sparring; on this occasion, the stakes are more serious. Just last week, critics aimed at Reeves and Keir Starmer were labeling their budget "a shambles". Today, it is denounced as lies, with Kemi Badenoch calling for Reeves to step down.
Such a serious charge demands clear responses, therefore here is my assessment. Has the chancellor been dishonest? On the available evidence, apparently not. There were no blatant falsehoods. But, notwithstanding Starmer's yesterday's comments, that doesn't mean there is no issue here and we should move on. Reeves did misinform the public regarding the considerations shaping her choices. Was it to funnel cash towards "benefits street", as the Tories claim? Certainly not, as the figures demonstrate it.
A Standing Sustains A Further Hit, Yet Truth Should Prevail
The Chancellor has taken a further blow to her reputation, but, should facts still matter in politics, Badenoch should stand down her lynch mob. Maybe the stepping down recently of OBR head, Richard Hughes, due to the leak of its own documents will satisfy SW1's thirst for blood.
Yet the real story is much more unusual than the headlines indicate, and stretches broader and deeper beyond the political futures of Starmer and the class of '24. At its heart, this is an account concerning what degree of influence the public have in the running of the nation. This should concern you.
First, on to Brass Tacks
After the OBR published recently some of the projections it provided to Reeves as she wrote the red book, the shock was instant. Not only has the OBR not acted this way before (an "rare action"), its numbers apparently contradicted the chancellor's words. While leaks from Westminster were about the grim nature of the budget was going to be, the watchdog's predictions were getting better.
Consider the Treasury's most "unbreakable" fiscal rule, that by 2030 day-to-day spending for hospitals, schools, and the rest must be completely funded by taxes: at the end of October, the watchdog calculated it would barely be met, albeit only by a minuscule margin.
A few days later, Reeves held a press conference so extraordinary that it caused breakfast TV to break from its regular schedule. Weeks prior to the actual budget, the nation was put on alert: taxes were going up, and the main reason cited as gloomy numbers from the OBR, specifically its conclusion that the UK had become less productive, investing more but yielding less.
And lo! It happened. Despite the implications from Telegraph editorials and Tory broadcast rounds suggested recently, that is essentially what happened during the budget, which was big and painful and bleak.
The Deceptive Justification
Where Reeves deceived us concerned her alibi, because those OBR forecasts did not compel her actions. She might have made other choices; she might have given other reasons, including during the statement. Before last year's election, Starmer promised precisely this kind of people power. "The promise of democracy. The power of the vote. The possibility for national renewal."
One year later, and it's powerlessness that is evident in Reeves's breakfast speech. Our first Labour chancellor in 15 years portrays herself to be a technocrat at the mercy of forces beyond her control: "Given the circumstances of the persistent challenges on our productivity … any finance minister of any party would be standing here today, facing the decisions that I face."
She certainly make decisions, just not one the Labour party wishes to publicize. Starting April 2029 British workers as well as businesses will be paying another £26bn annually in taxes – but most of that will not be spent on improved healthcare, new libraries, or enhanced wellbeing. Whatever bilge is spouted by Nigel Farage, Badenoch and their allies, it is not getting splashed on "welfare claimants".
Where the Money Actually Ends Up
Rather than being spent, over 50% of the extra cash will instead provide Reeves cushion for her self-imposed budgetary constraints. Approximately 25% goes on paying for the administration's U-turns. Reviewing the watchdog's figures and being as generous as possible to a Labour chancellor, a mere 17% of the tax take will fund actual new spending, for example scrapping the limit on child benefit. Removing it "will cost" the Treasury a mere £2.5bn, as it had long been a bit of theatrical cruelty by George Osborne. This administration should have have binned it immediately upon taking office.
The Real Target: Financial Institutions
The Tories, Reform along with the entire right-wing media have spent days railing against how Reeves fits the stereotype of Labour chancellors, soaking strivers to spend on the workshy. Labour backbenchers have been applauding her budget for being a relief for their social concerns, safeguarding the disadvantaged. Each group could be completely mistaken: Reeves's budget was largely aimed at investment funds, speculative capital and the others in the bond markets.
Downing Street can make a compelling argument for itself. The forecasts from the OBR were deemed insufficient to feel secure, especially considering bond investors demand from the UK the highest interest rate of all G7 developed nations – higher than France, which lost its leader, higher than Japan that carries far greater debt. Combined with the measures to cap fuel bills, prescription charges as well as train fares, Starmer together with Reeves can say this budget allows the central bank to reduce interest rates.
It's understandable why those folk with red rosettes may choose not to couch it this way next time they're on #Labourdoorstep. According to one independent adviser to Downing Street puts it, Reeves has "utilised" the bond market to act as a tool of discipline against Labour MPs and the voters. It's the reason the chancellor cannot resign, no matter what promises she breaks. It's the reason Labour MPs will have to fall into line and support measures to take billions off social security, as Starmer indicated recently.
Missing Statecraft and a Broken Promise
What's missing here is the notion of strategic governance, of mobilising the finance ministry and the central bank to forge a fresh understanding with markets. Missing too is any intuitive knowledge of voters,
