“NOT all chancellors in the last few years have been responsible, but I will be.” These are the historic words used by the UK’s first female Chancellor on BBC’s Today Programme. In discussion with Nick Robbinson, Rachel Reeves described the transformative yet inevitable inclusions of The Labour Party’s recent October budget, marking the most substantial tax rises in Britain since WW2.
Harking back to previous promises outlined in the Party Manifesto, Reeves began her address to the Commons on 30 October through stressing the importance of significant investment into public services. Understandably, there was a major focus on the state of the NHS, which the current government deems broken due to Conservative Party austerity. The exposure of the £22 billion pound black hole in public finances earlier this year, concerning overspending on departmental resources, was highlighted again in her speech. It is due to the previous government’s consistent failure to tackle strained public services that Reeves asserted a profound budget rise is unavoidable and an action which any good Chancellor should take. An announced budget rise of £40 billion in taxes certainly caused a stir in the Commons.
While Labour’s Manifesto draws on the government’s hard to deliver commitment to rebuilding Britain, is the path currently being pioneered too much of an economic gamble? While economists contest potential drawbacks, the value of transformative short term changes to reduce inequality and enrich public services appear paramount. So, is Labour’s vision for change the economic and social remedy this country needs? Economists are divided.
The Office for Budget Responsibility (OBR) forecasts a boost in GDP in forthcoming years. In fact, Britain is predicted by the OBR to be the fastest and sustained growing economy in the G7, which Prime Minister Keir Starmer has continually pinpointed as a key objective for the government. However, economic stagnation in the latter half of the decade can be attributed to various factors. Higher government spending, persistent inflation and interest rates are why some economists are doubtful of the extent of growth promised by Reeve’s budget. And it’s not just growth which some are concerned about. There is concern that low wage workers may be left worse off due to a 1.2 percent rise in Employers National Insurance Contributions (NICs), potentially lowering wages. This is because businesses will face higher wage bills potentially resulting in slower wage growth or even stagnation – affecting job stability as it becomes necessary for some employers to make greater staffing cuts.
It is argued that local businesses could be left worse off. For York, in which small businesses are pivotal to the local economy, it is understandable why some residents are apprehensive about the long term effects of the budget. Nevertheless, decisions and developments in fiscal policy have all been made for a reason. The Chancellor has admitted that the budget will have it’s consequences. Indeed, this includes effects on wage growth; mainly due to the increase in NIC’s. However, as outlined in the Chancellor’s speech, hard decisions have to be made for investment into an equal future for UK society. From Housing to schools, roads, the railways and of course the NHS; there is a lot the billions of extra cash raised can do for the country and its services.
Rachel Maskell, the MP for York Central highlights how the decisions have
many positive impacts, especially for working people and vulnerable families. The rise in the minimum wage first and foremost: “Puts money back into the pockets” of working people, with “more than 3 million people benefitting from an above inflation raise to the minimum wage”. This means residents have more to spend locally, subsequently “supporting local businesses”, as many struggle due to knock-on effects of inflation. Describing it as a “new dawn for Britain”, Maskell emphasises the impact the budget has to bring NHS waiting lists down, promising an extra 40,000 elective appointments per week; especially important following the consequences of the NHS backlog. Speaking on the impacts on young people, especially for those with special educational needs – Maskell is pleased to see investment into protecting those in need.
Over three billion being invested into ‘Labour’s Affordable Homes Building Project’, including the establishment of 350,000 extra homes, demonstrates significant strides towards minimising the inequality gap. All in all, while there is still debate surrounding the long term effects of the budget and it’s effectiveness; the full picture won’t be truly determined for a good few months. So, is it an economic gamble or an ignition for change? Rishi Sunak condemned the new Labour government “for not being straight with the British Public”, especially regarding transparency. While this may be true to an extent, maybe transformative change and diversion from austerity or fiscal normativity is something which can deliver. Referring back to the ideas of Ms Maskell again: This Labour Government plans to rebuild the country and perhaps that is exactly what they will do.
