Will our fiscal psychodrama never end?
I’m sure it wasn’t always like this. There was a time, really not that long ago in the grand scheme of things, when trying to predict the contents of an upcoming Budget was limited to dedicated policy wonks and Westminster’s most dogged journalists. These days, fiscal speculation is a major occupation for several months of the year.
With the public finances shot to pieces by Covid, Budgets became even more consequential and this trend has continued under Labour. Keir Starmer set the scene in 2024 by telling everyone in the summer that things would be awful by the autumn. Indeed they were, with Rachel Reeves unveiling £40bn of tax rises. The following year, with the economy spluttering, she came back for another £20bn.
Now it’s the turn of Andy Burnham and John Healey. To their credit, they wanted a Budget as soon as possible (next month’s will be four weeks earlier than last year’s) and in public they’re sticking to the line that they won’t indulge in speculation. Healey has specifically acknowledged the damage that can be caused by individuals and businesses reacting to what they think will be announced.
Budgets have become feats of contortion and survival
Unfortunately, with fiscal credibility on a knife edge and borrowing costs uncomfortably high, next month’s fiscal event will have all the drama of the last two Budgets no matter how much Healey appeals for calm in the run-up. With tax rises very much on the cards, the atmosphere is febrile.
Talk of casting the ‘mansion tax’ net wider and hiking capital gains tax goes unchallenged by the Treasury, which sticks to its policy of not engaging with speculation. Of course if they knew for a fact that something wasn’t going to happen they could quite easily rule it out, but this leads to a situation where everything not officially denied is taken as a dead cert.
We’re only in this fiscal psychodrama because the stakes are so high; we lurch from Budget to Budget seemingly in need of more and more money with all hard decisions delayed and the numbers wrangled onto the page in such a way as to stay, technically, within the wafer-thin fiscal rules that bind us. These fiscal events are feats of contortion and survival, while acute problems – such as runaway welfare spending, our eye-watering debt and the pernicious effects of fiscal drag – metastasise into chronic ailments.