In his “emergency budget” of 2010, delivered a month after that year’s general election, the newly appointed chancellor, George Osborne, set out the rationale for an age of austerity that would frame British politics for the next decade. Falsely associating the devastating impact of the global economic crash with Labour spending and borrowing policies, Mr Osborne exploited a crisis to launch a disastrous crusade to shrink the size of the state.
On Monday afternoon, in another defining Commons moment, Rachel Reeves also turned on her immediate predecessors, but with more legitimate arguments at her disposal. In a withering analysis, Ms Reeves laid out a “£22bn hole” of unfunded commitments for this year, much of it discovered only on opening up the books in office. The outgoing government, which calculated that an election defeat was assured, had made no attempt to make its own sums add up.
This act of irresponsibility further compromised a fiscal legacy that was already unequivocally dire. Fourteen years of chronic underinvestment and the hollowing out of the public sphere, compounded by the disastrous unforced error of Brexit and the folly of the Truss premiership, have delivered an economy beset by deep-rooted problems. Ms Reeves was right to paint the picture of Tory economic incompetence in vivid, shocking colours.
The harder part for Labour concerns what comes next. The chancellor’s decision to approve in full above-inflation pay rises to NHS staff and teachers is the right one. So is the move to offer a new 22% rise to junior doctors, who have suffered more than a decade of salary attrition. These choices reflect an understanding that national renewal will not be accomplished without the rehabilitation of public services, and the eroded status and conditions of those who work within them. A Conservative government would not have made them.
More worrying are the signals given by Ms Reeves that, elsewhere, Labour may stick long-term to the fiscal caution that characterised its election campaign. A second strategic purpose of Ms Reeves’ statement, beyond naming and shaming the Tory record of reckless economic opportunism, appears to have been expectation management. But the decision to squeeze spending and prioritise savings sits uneasily with the government’s resolve to kickstart the growth that successive Tory governments failed to achieve. The removal of winter fuel payments as a universal benefit uncomfortably echoes past austerity measures.
Anticipated tax rises on wealth in the autumn budget would allow some room for manoeuvre. That option was left open in the lead-up to the election. But Ms Reeves has limited her own choices by refusing to challenge a key element of the Tories’ grim legacy. By resolutely sticking to fiscal rules inherited from the last administration and first shaped by Mr Osborne in 2010, Labour will be pursuing its mission to rebuild a broken economy with one hand tied behind its back. As the Institute for Government has pointed out, a myopic focus on debt reduction has incentivised “bad policy decisions shaped by short-termism … and does little to promote fiscal sustainability.”
That approach has failed Britain. There was satisfaction on Monday in seeing Ms Reeves hold the previous government to account in such trenchant style. But Labour boasts a historic majority and a powerful mandate for truly doing things differently. To take that opportunity, it needs to belatedly make the argument for bold, transformative public investment that changes the political equation. The alternative is a Labour government whose aspirations are damagingly constrained by the economic errors of the past.
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