The Guardian is reporting the least surprising news of the morning:
Rachel Reeves is expected to reveal a £20bn hole in government spending for essential public services on Monday, paving the way for potential tax rises in the autumn budget.
They added:
Labour sources said the blame lay with the Tory government, describing it as a “shocking inheritance” and accusing the former chancellor of “presiding over a black hole and still campaigning for tax cuts”.
They pointed to spending concerns on the asylum system, welfare, defence and prisons. However, work is still being done on the audit and the final figure of £20bn could shift as officials examine the spending commitments of each department.
Why is this not surprising? It is because all of this was foretold. Take this from the Institute for Fiscal Studies in March, after Jeremy Hunt's last budget:
One thing is for certain. Whoever is chancellor after the next election, they are going to have one heck of a difficult circle to square. They will inherit historically high taxes, struggling public services, a big debt interest bill, the highest debt in 60 years, and poor growth. The first post-election budget and spending review will contain some nasty surprises.
In other words, everything that Rachel Reeves will say on Monday was already known. We knew that his forecasts were dubious, and included cuts to spending no one thought deliverable. That's what a Chancellor who knows he cannot be in office to deliver his Budget can do. But note, the Office for Budget Responsibility, in which Labour puts so much faith, signed that off.
So what happens next? The Guardian suggests:
Experts expect she will be forced to announce tax changes in the budget, with options including capital gains or inheritance taxes and slashing other tax reliefs. Reeves has ruled out changes to income tax, VAT, national insurance and corporation tax – the largest revenue raisers.
In other words, she will have to pick from the selection of tax changes outlined in The Taxing Wealth Report, as I always thought would be the case, which is why I wrote it.
So why has Labour denied this reality for so long? That's where its own fiscal credibility comes into question.
Reeves has choices, including borrowing more, or simply extending the government's overdraft with the Bank of England, which is called the Ways and Means Account. Doing so would provide the growth stimulus she says the economy needs. But what will she do? Are tax increases coming? Only time will tell.
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What a pantomime….. all this artificially manufactured shock at “how bad the books are”, “black holes” etc.. All nonsense, of course – even a casual reader of this blog would have known this. However, pantomime is for children, not the adults that read this blog.
It does appear another step in a choreographed attempt to justify future U-turns…. Is the Child Poverty Review just a fig leaf to allow the cap to be dumped? Is the “black hole” a reason to raise tax? …. or is the “black hole” a reason to retain the Child Benefit Tax and turn down the Pay Review Body awards for Public Servants?
The Pantomime is telling a story to the “children” …… but at the moment, even the adults don’t know how it will end.
The other pantomime being played by the rich people owned media is that the Labour Party general election was a convincing win for their right-wing policies. It wasn’t! Bill Mitchell does some number crunching:-
https://billmitchell.org/blog/?p=61881
Much to agree with – but I prefer the more sinister “grooming” (of the population). Pantomime is innocent albeit daft fun & there is nothing innocent about what is going on.
“a big debt interest bill,”… I believe that Reform was proposing to cancell the vast (£40bn/year??) payment of interest to banks for money given to them by the BoE. Of course Reeves/LINO don’t want to talk about that (it would upset Reeves bankster mates). But I could imagine Farage making some capital out of it (odd that the LibDems don’t perhaps they are too stupid? or too invested in the system?).
It is a tale told by an idiot, full of sound and fury, signifying nothing.
HI Richard,
Well then, if she is “forced” to raise taxes in the manner suggested, and the world doesn’t end because of it, surely the question must be why these options are not presented as sensible and correct. The hysteria behind any sort of tax rise is completely unreasonable, and needs to stop.
Regards
Even the IFS were doggedly making the point. It was made endlessly through the election. It is a reminder that elections are hopeless. Nobody is listening to the most important issues; not the politicians, not the Parties, not the Media, and not even the electorate. Elections are decided by sideshows; like the ‘small boats’ issue. In 2023 84k people applied for asylum in the UK. 29k migrants arrived by small boat in the UK in 2023. The total net immigration numbers to the UK in 2023, was 685k (1.2m in, 0.5m out: ONS). This is the real issue. The small boat issue accounts for only 4% of net immigration (2% of gross immigration). The spin is deflecting attention from the real issues. This is a commonplace of politics in Britain; which is largely the Art of Deflection (Look over here, where politicians want you to look, and not over there; where the real problem is suppurating, and politicians are floundering). The politics (and biased Press) simply ignores it the real issues. Both the small boats issue and the net immigration figure are a function of Government policy and resource allocation; or of the complete failure of both.
@ John S Warren
O look ! A squirrel !
Spot-on John.
Hello I see what you mean when I did A-level economics back in the 80s I learnt about the multiplier effect,the effect investment has on making the economy grow. During the election channel 4 did a program called skint,where it was explained Britain’s main problem is lack of growth and productivity. To improve these we need to invest something politicians never talk about preferring to talk about small boats etc. No wonder the country is in mess with silly politicians who haven’t a clue,who seem more interested in point scoring than actually doing anything and complain we can’t afford it. Pathetic!
It is so frustrating to watch a party that should share our values completely failing to do the things which are blindingly obviously needed to implement those values. As a result things that should be getting better are still getting worse. Will Labour ever get a grip on things?
It would be interesting to read an updated version of the chancellor’s speech in chapter 9 of your book, the Joy of Tax? Clearly a paradigm shift is urgently required. Otherwise it’s difficult to see how this government can escape the doom loop of failed fiscal policies inherited from previous governments that has promoted tax avoidance for the wealthy few, increased poverty for many and driven public services into the ground.
I have proposed a new version of the book to a publisher…
The title will not have the resonance today that it once had.
Agreed
I presume you are referring to the Ice Man?
Hi Rachel,
Help?
You have accepted the last Chancellor’s budget, which has the usual Osborne financial trap, more cuts for public services funding.
If you add in your new “fiscal rules” and increase taxes isn’t there a risk that you may end up with a recession?
Oh, any chance of using your powers to force the BoE to lower the base rate?
Great views as ever. Possibly spellcheck. ‘The Guardian is reporting the last surprising news of the morning’ Should it be ‘Least surprising news’ ?
Thanks
Changed
Is this Labour proclaiming defeat in the teeth of victory?
It will be their choice for sure as to what happens next, never mind suggesting that they have been stitched up.
Go on Rachel – make my day…………………..I’m all ears. This is what you wanted power for – wasn’t it?
Richard, Your ‘The Taxing Wealth Report’, if I understood it, reckoned that with reforms of e.g. capital gains and inheritance tax and more efficient and effective collecting, an additional £90 billion a year or so could be available to the Treasury. By re-stating that the Tories have left a £20bn black hole, isn’t Reeves just making her case for availing of some or all of the £90bn?
Yes
Not questioning the content. God help us.
But pantomime is for everyone!
Oh, no, it . . .
Oh yes it is.
“So why has Labour denied this reality for so long?” Presumably because they believe that (to slightly adapt TS Eliot) that the British electorate cannot stand very much reality – with justification, given the way said electorate has consistently behaved in the past. But to be fair, as has been pointed out, the electorate has only itself to blame if it’s surprised by Reeves’ announcement, given the extensive coverage of the issue in the election campaign.
Pantomime?
Perhaps more the scene from Casablanca where Captain Renault closes down Rick’s cafe claiming to be “Shocked, shocked that there is gambling going on in this establishment!” whilst being handed his winnings by the croupier
A Sky journalist has has also referred to Renault in Casablanca. The “shock” and reaction of Renault, as it happens frequently is because it is a running joke. The relevance to our politics is in Renault’s standard response every time: “arrest the usual suspects”. Now there is a prospect to be nurtured, not least in drawing up the list.
Post Office horizon Enquiry; providing the real insight into our politics and politicians – and it is a very sorry sight.
It is worth noting in passing, that Vince Cable followed Ed Davey and Pat McFadden in reminding us that our politicians, past or present are not equipped to do the job of governance. All have the same failing; they accept with punctilious deference, what they are told by officials, civil servants; and seem to believe Government is impossible if it run any other way. Living and functioning in a seriously defective world of recurring dereliction, does not require us to be in the vanguard of credulity. Where major institutions fail badly they do not as a rule advance the case against them; but close ranks and defend their reputation; even more where personal reputation is at stake. to believe otherwise is the definition of credulity. Institutions require to be trusted; but cannot afford to reciprocate, without a healthy dose of scepticism; and that applies ‘a fortiori’ to Government.
The shining mistake of all governments was to allow the Post Office, effectively to scrutinise itself; and effectively accept the Post Office case, without Government completely independently investigating an institution it owned, and for which it was responsible. When you read some of the correspondence on the Horizon issues sent out by Cable’s responsible Department; the very wording is remarkably close to the carefully worded phrasing used privately in Post Office e-mails with regard to the public statements supporting the Post Office position on the security and robustness of Horizon, and the reliability of prosecutions (see Martin Edwards, PO Chief of Staff witness statements, following day). The fact that it requires an injustice on the scale of the Post Office, and politicians are still struggling to see the wood for the trees, is a terrible indictment of our politics, and politicians. Only now are they limping, pathetically toward independence of mind, thought and investigation; far, far too late to be of any use to anybody at all. And there is our politics in a nutshell.
I should add on Vince Cable’s testimony, and astonishing naivety about computers. He doesn’t understand how they can both work most of the time, and make serious mistakes. he is an economist. There is a simple model he can use; the equations economists use, work perfectly all the time. Unfortunately, they have no relationship with phenomena in the real world; so the economics cannot predict anything; and their forecasting success is atrocious. There you are, Vince. Computers work just like economists; garbage in, garbage out.
Time for a bank of Britain for all public sector finance and pensions. Take the money away from oversubsided banks. They still owe us £££, €€€ , $$$!!! for the the financial crash of 2008.
I note that Kier Starmer appointed two advisors, namely Cary’s Robert’s and Rachel Statham. No doubt to put the pressure on Reeves and her banking mates to come up with the money as identified in the Taxing Wealth Report.
I also read another article “ Labour will fail in government if it does not reduce inequality, says new MP”. Torsion Bell said “ You won’t be able to claim success if you haven’t both got wages up and leaned against inequality and poverty.” He was also tipped as a future chancellor as you have mentioned previously in the blog. Curious coincidence as Reeves is now under pressure to deliver immediately as Starmer’s loyalty is primarily for himself.
Torsten Bell will fancy himself in the role of Chancellor
I think in an election where the Conservative press were attacking Labour for predicted huge tax rises associated with any new policy, Rachel Reeves had no choice but argue from the starting point that the Conservatives had already budgetted for the status quo – even if she knew they hadn’t. To put it bluntly, it wouldn’t have been helpful to campaign truthfully and say that taxes would have to rise even if no new money was made available for public services.
But I hope someone somewhere in the Labour back offices has seen your Taxing Wealth suggestions showing that a lot of revenue could be raised by concentrating on taxes that don’t significantly impact ordinary people, but would correct taxes that currently favour the wealthy. And also read that the amount of new tax needed to control inflation is going to be less than the total new expenditure.
I live in hope
I can fairly say there is nothing else like it
The chunk of the population that decides who wins General Elections, simply won’t vote for tax rises.
Evidence Teresa May in 2017 – miles ahead in the polls, calls a snap election, proposes a new tax to fund social care, and BANG goes her poll lead and, almost, her majority.
It’s naive, tragic, child-like.
So progressive politicians have to ‘promise’ one thing in opposition and – shock, horror – in office discover something so ‘unexpectedly’ bad, that they must then do something quite different.
We ourselves spawn the weak, untrustworthy politicians that grace the national scene, by our own selfish, pathetic behaviour.
Of course, tapping up the Ways & Means Account would be a fine alternative, except that no one save Richard even informs us of its existence
A question from the man in the street. The last government made loads of cuts to services, but now we still have a 20 billion shortfall. Where did all the money “we saved” go to?
The money ‘saved’ was never spent. And so we had less money in the economy, lower incomes, lower growth, lower productivity and a lower tax yield. It was a false economy.