It is normal for a new government to raise taxes in its first year. The old regime can be blamed for leaving a fiscal gap and there is time before the next election for resentment of the higher bill to fade.
Rachel Reeves is not the first chancellor to base her first budget on such a gamble. Nor will she be the first Labour politician to be accused by Conservatives of suffocating enterprise with ill-targeted levies. It is a ritual chant and especially hollow coming from the party that is responsible for the current abject state of public finances and public services.
Ms Reeves’s plea of force majeure is valid. The last government, anticipating election defeat, felt no obligation to make responsible fiscal choices. Jeremy Hunt implemented unaffordable tax cuts and scheduled unrealistic spending cuts for the coming years.
That much is fact. There are then political and ideological arguments about the precise dimensions of the “black hole” and the best way to fill it. Labour has made it clear that there will be some combination of higher borrowing, tighter departmental budgets and tax increases.
As to who pays, there is a case for structural reform to the tax base focusing more on asset wealth, less on income. Of the established revenue-raising levers in the Treasury, the most powerful ones are VAT, corporation tax, income tax, and national insurance contributions (NICs). By pledging not to deploy most of those tools during the election campaign, Labour has made its life in government much harder.
Whether that commitment extends to raising the employer portion of NICs is now the subject of fierce dispute in Westminster. Conservatives say it would be a huge breach of trust. Labour says its promise was not to raise taxes for “working people”, which implies only the employee end of NICs.
For the chancellor to have painted herself into such a tight rhetorical corner is symptomatic of a generally shrivelled political conversation around tax. The debate is framed on Conservative terms, around a presumption that governments are always heaping a “burden” on “hardworking people” and that, while money is needed for essential services, there is always scope for “efficiency savings” so taxes can come down.
It is true that most people prefer lower taxes to high ones. It is also true that some economic incentives are diminished if too many of the fruits of labour are confiscated by the exchequer. But it is also true that people like services that work, and that a well-resourced (and well-managed) public sector and social safety net can boost productivity and collective economic performance. That side of the argument has been neglected for generations.
The Tories spent 14 years trying to shrink the state, but they could not reduce demand for government even when they cut supply. Austerity succeeded only in degrading the public realm, generating higher social costs – more crime, worsening health problems – that then required emergency spending. Public money was used for crisis management instead of investment. That led to the worst of both worlds: stealthy tax rises that didn’t yield a political dividend in satisfied service users.
Ms Reeves can now break that cycle, but it requires courage in making the case that taxes are not just an unfortunate requirement of fiscal consolidation. They are also a democratic expression of collective solidarity. If politics is a competition to pretend that public goods can be financed from thin air, the Tories have the advantage. In opposition, Labour felt obliged to collude in that fiction. Now it is time to tell a more honest story about essential services, who benefits from them and how the cost must be met.
