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11 March 2024

Labour’s post-Budget dilemma

Rachel Reeves has ruled out additional tax rises and borrowing – does that mean bringing back austerity?

By Freddie Hayward

Within hours of the Budget, it was clear that Labour had a problem. How would the party fund the policies its non-dom tax abolition was going to pay for now that the government had used the money to pay for tax cuts? Labour ruled out further tax raises. It also stood by the policies, which include school breakfast clubs, more nurses and MRI scanners. That leaves only one option: moving money from one area to another – in other words, spending cuts.

Rachel Reeves has said she will go through the government’s expenditure to find the £2bn she needs. Relatively speaking, this is pennies, and we shouldn’t overstate how important this is to Labour’s plans for office. But it reveals her priorities: Reeves would rather cut spending than raise taxes or borrow more money.

That’s before the election, anyway. Reality might intervene afterwards. Reeves suggested yesterday that she would not bail out the growing number of bankrupt councils, for instance. Is that true? Councils are responsible for many of the services that define people’s interaction with the state. Is Labour going to let bins pile high in the streets, libraries close, arts funding end? How will Labour claim to be the party of devolution when councils cannot provide basic services?

Then there is the national government’s financial quandary. That Reeves leant into spending cuts when she spoke to Laura Kuenssberg yesterday suggests that Labour might follow through with the Tories’ planned departmental cuts next year. Under current forecasts, unprotected departments could face real-terms cuts of about 3.4 per cent a year. Given the dire state of unprotected areas such as prisons, this could be undeliverable – but Labour is not making that argument now. If it did follow through, that would be the death of its slogan “invest to save”.

This grim prospect suggests Labour is determined to get its excuses in early, and convince the public that because of the economy it will inherit, change will not come fast. Some sources I spoke to last week think this is key to avoiding a swift backlash in popular opinion in a Labour government’s first few months in office. Reeves will hope that economic growth means she won’t need to choose between further spending cuts, raising taxes and borrowing. What, though, if her gamble does not pay off?

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[See also: A think tank for the age of Starmer]

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