Rachel Reeves is shocked – shocked she tells you – at the state of the public finances. Never mind that everyone passingly familiar with spreadsheets, including City A.M., had warned her – the chancellor has now discovered what was hiding in plain sight: Britain is poor.
Incoming governments promising one thing to get elected and then exaggerating economic precarity as a cover for implementing unpopular policies is nothing new. But claims that the Conservatives have left the “worst economic inheritance since the Second World War” are a political pantomime.
True, the pandemic involved war-like levels of spending and sacrifice – all of which Labour would have prolonged with harsher lockdowns. But as Capital economics have said, the situation is not unambiguously worse than other governments have faced. The Conservatives in 2010, for example, were bequeathed higher inflation, more unemployment and higher borrowing and expenditure as a share of GDP.
Half the £20bn ‘black hole’ Reeves has uncovered consists of public sector pay. Pay review bodies are independent, so their higher-than-expected recommendations can’t really be blamed on the previous government and are, in any case, discretionary. But given Labour have just agreed a 23 per cent deal with junior doctors, it’s clear that pay restraint will never be their first choice.
Indeed, if things really are as bad as Reeves claims, then her interventions are surely far too modest. Pausing a few infrastructure schemes in a system already so beset by dilation and delay is just moving one waste of money into another column headed ‘waste of money’. It’s also a short-sighted move for a government that’s nominally going for growth.
Scrapping winter fuel payments, though relatively cheap at £1.5bn, is a sensible saving but also a welcome gesture towards younger taxpayers. But at the same time, the Chancellor has abandoned changes to adult social care that could have made the system more sustainable.
Labour will never have a better chance to make big, ambitious changes. Rather than playing up the gloom, the government could be telling a positive story about the benefits a pro-growth agenda will bring – as they have with planning reforms. Just as building more houses spreads ownership, jobs and opportunities, boosting public sector productivity would result in a leaner, more effective state that better serves British interests. Instead, we are getting a warm-up for a much more predictable second act: Tax rises are coming, look behind you!