Rachel Reeves might calm market jitters and cheer Labour MPs – but she has not shown real ambition
3 min read
I often told myself to be very careful about rushing to too early a judgement about a Budget but, given how there were no major surprises in this one, that feels less risky as I write today.
After the trails and leaks ahead of it, perhaps the biggest excitement on Rachel Reeves’ big day was the premature release of the all-important OBR forecasts.
My first takeaway is that the Chancellor has taken decisions to ensure the persistence of her own fiscal rules, and the shape and scale of policies again has been primarily driven by the importance she attaches to fiscal credibility and the first rule to reduce borrowing over time. The markets are happy about this – for now.
Analysts will probably also be happy that she has increased the size of the so-called buffer to protect against possible unknown events ahead. I, too, welcome this, along with the decision to shift to just one fiscal event a year.
Among the issues plaguing this still-young government was that two fiscal events and heavily anticipated OBR forecasts were causing instability. Every piece of monthly data led analysts and commentators to query what the government was going to do to comply with its fiscal rules. That helped create an environment where business, investors, politicians and the population were always focused on what enforced policies might lie just around the corner. Hopefully, we are now past peak Budget policy speculation.
When it comes to the policies the Chancellor actually announced and the consequent OBR forecasts, the watchdog’s revised GDP growth forecast of effectively 1.5 per cent on average is actually lower than previously estimated.
That underlines how difficult it is for the government to achieve its ambition of materially boosting growth to a degree that induces the ‘wow’ response I assume they seek. I am a bit surprised, given the degree of advance trailing about steps to reduce the cost of living, that those measures weren’t deemed large enough to result in lower inflation forecasts from the OBR. In fact, they were revised up a little.
All of which still begs two important questions. First, what is it the government is truly interested in, in terms of its priorities? I truly admire its commitment to the second fiscal rule it introduced last year – to boost public investment spending. But where was the focus on that in the Budget?
Yes, the Chancellor deserves huge congratulations for committing to not chop public investment spending at the first sign of trouble – as has been the norm all the way back to Margaret Thatcher’s era. But I thought the rule was created to encourage more ambition, not less pain. What on earth is really happening with Northern Powerhouse Rail? It seems so obvious to me that that, unlike HS2, would add serious momentum to the slowly rising positive growth story in Manchester and parts of the North.
And second, when is a government – including one with a large majority like this one – going to get real and start the process of serious structural reform on the clear areas of government spending that are eating away at our underlying fiscal stability, and probably harming longer-term growth?
I naively thought a few months ago that this Budget might have included true structural property tax reform. The need for it unites economists divided on other topics. And of course the persistence of the triple lock on the state pension becomes intergenerationally more and more unfair, expensive for taxpayers and fuels higher long-term debt.
The same, but even more so, applies to many other aspects of welfare.
The markets might be calm for a while, the Labour backbenches similarly, but both they, and much more importantly, 65 million citizens want more ambition.
