Copyright newstatesman
This was not the speech that Rachel Reeves wanted or planned to give. Almost exactly a year ago, scarred by business criticism of her National Insurance rise, she told the CBI that she would not be “coming back with more borrowing or more taxes”. But today’s address from 9 Downing Street – delivered as markets opened – was an unmistakable signal that more taxes are on the way. Both before and after the election, Reeves and Keir Starmer routinely insisted that they would not break their promise to freeze rates of income tax, NI and VAT (described by one former No 10 aide as Labour’s “original sin”). In more recent times that became an insistence that “the manifesto stands”. Today, Reeves declared that all would have to “contribute” to the task of protecting public services and the economy and that “each must do our bit”. That sounded very much like a warning that most workers will be paying more – and could herald the first rise in the basic rate of income tax since 1975. Reeves has suffered from an absence of pitch-rolling before. Her ill-fated decision to remove winter fuel payments from most pensioners stunned both Labour MPs and voters. By contrast, her decisions last year to loosen her fiscal rules and to raise taxes by more than almost any chancellor before were well-anticipated. No 11 wants Reeves’s second Budget to land on similarly comfortable ground. The Chancellor maintained, to scoffs from some, that her first had “fixed the foundations” but warned of “continual challenges” since then: Donald Trump’s tariffs, persistent inflation, elevated interest rates and higher defence spending. And she warned that a “rushed and ill-conceived” Brexit, austerity (“a hammer blow to our economy”) and Covid-19 had damaged the UK’s growth potential, as the OBR’s review has concluded. But her defining political judgement is this: that voters are prepared to pay higher taxes for better public services. Polling by Persuasion UK, revealed by my colleague Anoosh Chakelian and studied by the Treasury, shows the public prioritises reduced NHS waiting lists far above Labour’s tax pledges. Reeves today, like Gordon Brown before her in 2002, tied higher taxes to protecting Britain’s “national religion”. The Tories’ vow to cut public spending by £47bn would, she warned, have “devastating consequences for our public services. Brown’s increase in National Insurance has been remembered as one of the most successful tax rises in history: NHS waiting lists fell dramatically and Labour won a third term. But Reeves today faces far less propitious circumstances: voters weary of almost two decades of squeezed living standards and more distrustful of politicians than ever. Reeves’s great gamble is that she can yet restore their faith by proving that crumbling public services and economic stagnation are not inevitable. The risks, however, are considerable: Reform will cry that her tax rises prove that no Labour politician can be trusted; the Tories will charge her with chronic economic mismanagement; the Greens and Lib Dems will ask why she isn’t doing more to tax wealth. But Reeves, who believes she has been underestimated throughout her political career, insists she can prove the doubters wrong. And sympathetic Labour MPs ask what an already unpopular government has to lose from raising taxes. Yet if the political cost proves too great, the risk for the Chancellor is that she will pay the price. This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here [Further reading: Anthony Hopkins remains an enigma]
