Millions of taxpayers are dreading what Reeves will do when she unleashes her autumn Budget on October 30. They have every right to be.
Inheritances, capital gains, pensions, property, Isas and almost every form of wealth are now in Labour’s line of fire.
It’s a terrifying prospect.
Much of this is ideologically motivated, but not all of it.
Social groups who thought PM Keir Starmer would back them also seem doomed for disappointment.
Labour is dragging its feet on compensating Waspi women caught out by moves to hike the state pension age for women born in the 1950s.
Starmer also seems unlikely to axe the two-child benefit cap, to the fury of trade unions and activists who say it’s forcing hundreds of thousands of children into poverty.
Reeves has made it clear that she’s going to make “difficult choices” while pinning the blame on the Tories for leaving a £22billion black hole in the nation’s accounts.
You may hate what Labour is doing, but one thing can’t be denied.
The UK is in a financial hole. And we can’t keep digging.
Just how bad things are was laid out last week by the Office for Budget Responsibility (OBR). Its report on Fiscal Risks and Sustainability makes gloomy reading.
I wasn’t going to write about it but it’s Monday so here goes.
The OBR points out that the UK has run an annual deficit of around 5% of GDP for much of the Millennium. The national debt has now tripled to 100% of GDP as a result.
Some on the left believe this isn’t a problem. They have signed up to a credo known as modern monetary theory (MMT), which suggests that governments can borrow as much as they want and should simply print money and spend it.
MMT is rubbish, of course.
The UK’s debt is a massive problem and the sooner both sides of the political divide accept that, the better.
We spend £100billion a year simply servicing the interest on it. That’s almost as much as we spend on the state pension.
That’s a lousy use of taxpayer cash.
Public spending now makes up a thumping 45% of the total UK economy, the highest since the 1970s, due to increased spending on public services, welfare and debt interest.
Taxes are now at a 70-year high but they only make up 37% of GDP. That’s nowhere near enough to plug the gap so what can we do?
Tory PM Liz Truss decided the way out of this problem was to slash taxes, in the hope of boosting economic growth.
Maybe that would have worked, but not in the calamitous way Truss handled it.
Labour under Starmer seems to believe it can plug the gap by taxing more. I see another calamity looming.
The wealthiest taxpayers are fleeing the country while middle income Britons are taking evasive action to cut their tax exposure.
Labour risks losing more tax than it gains, and crushing the tentative economic recovery at the same time.
Ultimately, Reeves risks making a bad situation worse.
Worse, Labour seems likely to duck the hard choices it really needs to make, because its supporters won’t like it.
It needs to cut worklessness and boost productivity. Yet the unions want higher pay, fewer hours, extra hols and now a four-day week, which will only makes things work
As the population ages and young people have fewer children we need immigration but it has to be the right type.
As the OBR made clear, low-skilled immigrants ultimately claim more in benefits than they pay in tax. With higher-skilled immigrants, it’s the other way round.
It’s a message many on the left don’t want to hear.
Labour also has to sort out the NHS. Again, its supporters will revolt at the first whiff of reform.
If Starmer and Reeves are brave enough to tackle those three issues, they’ll deserve our gratitude. If they simply slap on more taxes, we’re doomed. Either way, it’s going to be brutal.
