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  1. Politics
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4 March 2024

The Budget won’t save the Tories

Rishi Sunak and Jeremy Hunt have no good answer to Labour’s “Reagan question”.

By George Eaton

Jeremy Hunt’s Budget is not designed to save the British economy – it is designed to save the Conservative Party. The Chancellor’s haphazard quest to fund tax cuts is driven by politics, not economics. A party now polling almost as poorly as it was under Liz Truss is desperately searching for a life raft.

Like George Osborne before him, Hunt is seeking to trap Labour by controlling “the baseline”. Should the opposition diverge from his fiscal plans, he will accuse it of planning a tax or borrowing “bombshell”.

The Chancellor is threatening to sharpen Labour’s dilemma by poaching two of the party’s biggest revenue raisers: the abolition of non-dom status (a measure first proposed by Ed Miliband in 2015) and an extended windfall tax on oil and gas companies. Opposition aides say they have long anticipated the Tories’ act of political plagiarism but, for now, refuse to specify their plan B. 

After last year’s Autumn Statement, when Hunt cut taxes by £20bn – to no discernible benefit – Labour is relaxed about the prospect of further reductions in income tax or National Insurance. Whatever political animal emerges from Hunt’s hat on Wednesday, the party’s response will be the same – it will pose the “Reagan Question”. Back in 1980, during his final presidential debate against Jimmy Carter, Reagan faced the camera and asked viewers: “Are you better off than you were four years ago?” Americans concluded that they weren’t and elected the Republican by a landslide (he carried 44 states to Carter’s six). 

Labour intends to emulate this triumph by channelling Reagan: “Are you better off than you were 14 years ago?” At present, the answer from voters is an emphatic no. In perhaps the most essential measure of public opinion, a recent Deltapoll survey showed that 62 per cent of voters, including more than half of 2019 Tory supporters, believe life has got worse since 2010. 

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Their despondency is unsurprising. For the first time in modern history, British households are projected to be poorer (by an average of £1,200) at the end of a parliament than they were at the start. Average real wages are still below their 2008 level. 

While Hunt boasts about delivering the largest tax cuts since Nigel Lawson in 1988, Labour will remind voters that these are sandwiched between £20bn of past tax rises and £17bn of future ones (the equivalent of an extra £4,300 for every household). 

For Rachel Reeves, as for Reagan, the “better off” question is not a purely monetary one. It is a distillation of a far wider set of concerns. As one aide puts it, “Can you get a doctor’s appointment? Can you get the childcare you need?” Bankrupt councils, crumbling schools and terminally delayed trains have served to exemplify an age of private affluence and public squalor. 

Tory MPs continue to underestimate the salience of such concerns and overestimate the potency of tax cuts. Sunak’s aides were surprised when the Conservatives received no political reward from January’s 2p cut in National Insurance – they should not have been. 

In Labour’s focus groups, the message that the Tories are “giving with one hand and taking with the other” has resonated. “People understand ‘fiscal drag,’” a Reeves aide said in reference to the painful freeze in tax thresholds. Voters are also cynical about the Tories’ motives: “They know tax cuts are being used to prop up Sunak rather than to help them”. 

After a decade of austerity, a restive public no longer regards tax cuts as a priority. A new poll by the Tony Blair Institute found that 52 per cent of voters want the government to use any fiscal windfall to “improve the quality and efficiency of public services and prevent future crises”, while just 11 per cent want it to “cut some taxes for people and businesses now”.

Hunt intends to do the opposite of the public’s preference: he is using implausible future spending cuts to fund tax reductions. One Tory MP was recently moved to confess to a shadow cabinet minister that he feared winning and being forced to attempt to deliver the plans. Unprotected departments would see their per capita day-to-day budgets cut by 17 per cent in real terms – austerity piled on austerity. 

“This isn’t 2010, the people running these departments don’t think the cuts can happen,” Torsten Bell, the chief executive of the Resolution Foundation, told me. “If you talk to the people running the Ministry of Justice about prisons not falling over, if you talk to local government, if you talk to Michael Gove, none of them think that their departments can deliver.”

The Tories’ “scorched earth” strategy is designed to sink Labour – either in opposition or in government. While some of Starmer’s MPs fear defeat, others fear victory – a new austerity administration that becomes rapidly unpopular. The fate of Olaf Scholz’s incumbent Social Democrats, now languishing in third place behind the Alternative for Germany, is increasingly cited. 

But beyond spending increases funded by tax rises on non-doms, private schools and private equity executives, Reeves’ team refuse to commit to cancelling the cuts. Instead, they emphasise growth above all. 

“In the long run, the only way to get money back into public services in a sustainable way is to grow the economy,” an aide told me. “All of the [OBR] forecasts that will be published will not be about Labour’s growth plans, they will be about the Tories’ growth plans. We are confident that the changes that we would introduce would boost growth.”

If it assumes office, some suggest Labour may yet surprise on the upside. “They may just get lucky, the economy might just start growing,” Paul Johnson, the director of the Institute for Fiscal Studies, a man not renowned for his sunny disposition, told me. “Economists are useless at forecasting turning points and we may just get a turning point. Growth may go back to its pre-2008 norm, I’m not saying that’s my forecast but it is possible and in that world everything clearly becomes easier, a combination of technological change and the global economy doing better may help.” 

He cautioned, though, that Labour might not see the benefits from pro-growth measures such as planning reform for four or five years. “That is a completely coherent strategy but it will mean getting over some bumpy years in the meantime in terms of the money that is available for public services.” 

Yet just as the Tories blamed post-2010 austerity on “the mess left by Labour”, so Starmer and Reeves are pursuing their own version of this strategy. They repeatedly warn that Labour will have the “worst inheritance” of any postwar government. The Tories, Reeves declared, have “smashed the windows, broken the door down, and are now burning the whole house down”. (The shadow chancellor will use the prestigious Mais Lecture in the City of London on 19 March to flesh out her alternative vision.)

The open question is how long Labour’s grace period would last. A volatile electorate that allowed it to recover faster than any opposition in history could yet see it fall to earth in government. In time, a Labour administration would be asked: are voters better off than they were four years ago?

For now, at least, Starmer and Reeves can console themselves that the Tories have no satisfying answer to this question.

[See also: George Galloway’s return isn’t a nightmare for Labour]


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