“Gordon, please tell me what’s in the Budget”
When Tony Blair was Prime Minister, his relationship with the Chancellor was so strained that, reportedly, Blair often learned of the Budget only when it was announced in the House of Commons. In 1999, Blair was so desperate that he went on TV and unilaterally announced that spending on the NHS would rise to meet the levels spent by European Countries – bouncing Gordon Brown into finding the money. Brown’s face the next time the two met must have been roughly the same colour as the faces on the Conservative front bench during the Budget statement as Rachel Reeves roasted them thoroughly for about 20 minutes (turning them halfway and adding a little seasoning) about the black hole in the nation’s finances.
To say that Reeves is an admirer of Gordon Brown would be an understatement – and there is heavy nostalgia within the current Treasury for his spend and deliver approach to fiscal policy. However, one key difference between the two is that at today’s announcement, we saw a clear vision that she and Starmer share for the country. She made a virtue out of the fact that she had been making choices and, in this Budget, we can see clearly the view that she and the Prime Minister have taken about how to meet their Growth mission.
Many commentators on the right, and (often more quietly) some businesses, have coalesced around a broadly liberal approach to fiscal policy ahead of this Budget: “Surely the Chancellor knows that you promote growth by removing red tape, lowering consumption and employment taxes, removing the barriers to employing people, and create incentives for entrepreneurs to invest?” pronounces His Majesty’s loyal opposition.
A number of the measures taken by the Government not only ignore, but actively work against this school of thought – strengthening employment law, increasing employers’ NICs, expanding inheritance tax to the agricultural sector, and proposing measures to raise Capital Gains Tax. The Chancellor and Prime Minister are relying on other measures to offset these factors: Employment rights boosting productivity, 40 per cnet business rate relief for many high street businesses, changing the Government’s borrowing rules so that they can invest more in infrastructure and, perhaps the strongest message of all: “We are a stable Government, we know where we’re going, we have an unassailable majority and we’re here for at least 5 years – please come and invest here”. This is their big gamble. Reeves is all too aware that the reaction of the bond markets will be critical – hence the groundwork she has put in with organisations like the International Monetary Fund.
The property industry has already received its message from the Government through early announcements about changes to planning policy and the NPPF (see this blog by Redwood’s Greg Ford), which effectively delivers a clear message of “please build as much as you can”. Reeves’ Budget statement included a reference to the pledge to build 1.5 million new homes. She also announced significant new investment in affordable homes – a clear sign that they know what messages play well with their target voters – as well as funding for Brownfield Regeneration schemes and new municipal planning officers.
Across the Government and the Parliamentary Labour Party you can almost hear the sharp intake of breath as they wait to see how people, businesses – and, perhaps most importantly, the bond markets – will react.