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  1. Election 2024
  2. UK Politics
23 November 2023

How should Labour respond to the Autumn Statement?

Jeremy Hunt is borrowing from the future to pay for tax cuts now – Rachel Reeves will need to react.

By Freddie Hayward

Has some coherence finally been imposed on the Conservatives’ electoral offering? No, I wouldn’t go that far. But the Chancellor did go some way in the Autumn Statement to defining the Conservatives against Labour. Don’t expect the ideological battles of the Truss days. But we may now have some economic debate at the next election. For those of us who believe in politics as a dialectic, this is good news. Andrew made the point well in his excellent piece yesterday:

“We will be left with a highly traditional electoral choice next year: a Conservative Party that, despite its tax-raising record, would still like to cut taxes even across a diminished public realm; and a Labour opposition that cannot, in all honesty, offer tax cuts even to struggling families, while public services remain in such perilous disrepair.”

It is worth skewering the farce of the Autumn Statement before we press on: Hunt took unreasonable amounts of money from future public services to pay for tax cuts today. Those cuts to public services are unlikely to happen for two reasons. First, the public realm has already been stripped since 2010. Second, the public knows that and does not want the services people use every day to get worse. On top of that, Hunt is actually raising taxes overall. The Autumn Statement, therefore, was an election pamphlet written in fiscal myths. Nonetheless, or perhaps because of that, it has shored up support in his party in the short term. As one Tory MP put it to me, “It was good – but we now need a poll bounce.”

In response, Labour cleaved closely to the Conservative Party. It will support the reduction in National Insurance – which is consistent with its message on lowering taxes on working people – and back full expensing, a tax break for business investment. But this week has shown that the Conservatives will argue Labour will raise taxes once in government. However much Labour denies it, this is the stick with which the Tories will bludgeon Labour until the election.

How should the opposition respond? One senior Labour source mused to me last night about deploying wealth taxes to cut levies on working people. The idea would be to neutralise the Conservatives’ argument that they are the party of low tax by shifting the tax burden, not increasing it. (It’s an idea Harry and I discussed on the podcast recently.)

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The usual case against taxing the wealthy is that it’s perceived as a tax on success and aspiration. But there’s an argument that when times are tough, aspiration turns to anger. Labour has already tapped into that sentiment with plans to tax non-doms, private equity firms and private schools – tentative signs that Labour accepts the principle that the rich need to pay more. But Rachel Reeves has already ruled out wealth taxes. As one shadow minister said when I put the idea to them, “that’s one for Rachel!” In any case, wealth taxes would carry their own electoral risks, and why take a risk when you’re 20 points ahead in the polls?

Instead, Labour will be forced to sharpen its argument that public investment leads to growth. The Tories will argue growth lies in cutting taxes. Whatever the fiscal facts, yesterday showed that this could be the debate that drives the next election.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: The divide between Labour and Conservatives has been sharpened]

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