Rachel Reeves must resign if she hikes income tax
Exactly a year ago today, which was exactly a week after Rachel Reeves’ first Budget – I wrote that the Chancellor’s policies would give Brits the hangover from hell.
So, one year on, how are you feeling?
My reference to a hangover was inspired by the government’s absurd post-Budget boast that they’d taken a penny off the cost of a pint.
I suggested that the “impact of the hikes to employers’ national insurance combined with a chunky rise to the minimum wage constitute a major disruption to employers in the retail, leisure and hospitality” – and so it has to come to pass.
What’s more, as we report today, the number of British pubs and bar businesses appointing liquidators or administrators has hit its highest level in 20 years.
But while I could certainly devote this whole episode to the pain inflicted on our hospitality sector we’ve got to zoom out and look at what’s happened between the last Budget and the one coming up, where it leaves the country and where it could leave Rachel Reeves.
Things will get worse before they get better
Ahead of her first Budget last October, the Chancellor and various ministers spent weeks, months even, telling us that they’d looked at the books and things were very bad and therefore the Budget will be difficult, there will be tough choices and things will get worse before they get better.
This was presented as harsh medicine; unpleasant but necessary and just the sort of hard work a Labour government was good for. So, £40bn of tax hikes and £70bn of additional spending were pumped into the patient.
This was to “fix the foundations” of our economy and prepare the ground for economic growth. Concluding her Budget speech in 2024, Reeves said:
“The choices that I have made today are the right choices for our country. To restore stability to our public finances. To protect working people. To fix our NHS. And to rebuild Britain.”
Let’s take those one by one, shall we?
“To restore stability to our public finances” – well the wafer-thin fiscal headroom Reeves left herself at the last Budget meant that we’ve had a year of vulnerability and a year of debate about how it could possibly be restored, and we’re in a debt nightmare.
“To protect working people” – well, unemployment has ticked up every month since the Budget and inflation – fuelled by government spending – has remained higher for longer, eating away at the income of working people.
“To fix our NHS” – well, is it even fixable? True, they’ve carved out more hospital appointments but the service has been hit by strikes and what’s more despite another cash injection productivity in the NHS has slumped. Again.
And as for the idea that last year’s Budget policies would “rebuild Britain” – just consider the extraordinary speech Reeves delivered in Downing Street earlier this week.
Reeves’ extraordinary Downing St speech
She reiterated her claim that she’d “fixed the foundations of the economy” but then stood back, looked at her work and said “your roof’s falling in, that’s going to cost you.”
A long list of excuses were rolled out – some of them valid and accurate critiques of our longstanding economic problems – others, not much more than desperate attempts to explain away anaemic growth and the need – the shocking need – to raid the nation’s coffers once again at the upcoming Budget. Analysts debate the scale of the tax rises coming – the most optimistic assume a £20bn raid while others talk of £40 or even £50bn to be raised.
What’s almost certain is that the government will break its manifesto commitments. They didn’t say much in the election campaign but they did say – time and again – that they would not raise income tax rates, VAT or national insurance. They already played fast and loose with that last one – hiking employers’ national insurance last year – but it’s income tax that could prove explosive.
Reeves might be about to become the first Chancellor to raise the basic rate of income tax for 50 years. It might be accompanied by a cut in national insurance, giving them cover to claim that the overall take won’t have changed for ‘working people’ – but for the millions who generate an income without being liable for employee national insurance – landlords, investors, entrepreneurs, pensioners, this would be an income tax rise and the bottom line is, the Chancellor cannot possibly expect to get away with it.
Cynical and dishonest
It would be utterly outrageous and should be utterly unforgivable for a Chancellor to win office by promising not to do something, only to go ahead and do it a year later. However they’re trying to rewrite the narrative or explain new context or blame bad luck, bad weather or bad forecasts, raising income tax would be a shameful admission of failure and a brazen, cynical act of political dishonesty. And this from the team that called the police over Boris Johnson’s birthday cake.
Even if you accept that income tax has to rise, she could deliver that policy and then concede that she cannot remain in post to oversee it; she will support the government and the Budget from the backbenchers, having taken responsibility for breaking trust with the electorate.
You could argue that responsibility goes to the top, that what applies to Rachel Reeves must apply to Keir Starmer, and of course it should, but he will pay the price in the polls and in the total breakdown of support for this government.
Reeves has said she won’t resign if she breaks her election manifesto promises. She said: “I am not going to walk away because the situation is difficult. I was appointed as Chancellor to turn our economy around, and I’m absolutely determined to finish that job.”
God help us.