I admit to not being Rachel Reeves' biggest fan. I think that my posts on this blog and YouTube make that clear. But this comment in an article in the FT this morning set me thinking:
Rachel Reeves' increase in business taxes is taking its toll on the UK economy as companies cut back hiring, adding to warnings that the chancellor's Budget has sapped corporate confidence heading into the new year.
Private sector employment in December fell at the fastest pace since January 2021 or, if the coronavirus pandemic is excluded, 2009, according to the S&P Global flash UK purchasing managers' employment index published on Monday.
I asked myself how that could all be down to Rachel Reeves. Even I have to admit that to suggest it might be to afford her a greater responsibility than she deserves. Being Chancellor is important, and the role has some influence in the narrow financial sphere in which neoliberal politics, such as it is, are played out. However, is suggesting that a national insurance charge change that has yet to happen so influential pushing the boundaries of credibility?
To put this another way, my suggestion is that Rachel Reeves read the mood music of the moment very badly. The economy was in a poor state when she came into office. What she did not appreciate - because she is so fixated on the government's supposed financial position rather than the state of the economy around it - was that what was needed from her in October was a significant economic stimulus if a recession was to be avoided. She misread the cues so much that she delivered austerity instead. Her sin is of compounding the downturn that was already happening.
Why is it happening? Three reasons.
First, most people do not have enough money.
Second, the money that they have is being spent on interest on mortgages, rent driven upwards by high interest rates, and servicing basic costs that have risen by too much because of inflation and regulation that has permitted that to happen, whether that be excessive phone, utility, water, rail or other charges.
Third, in a society where it is obvious that only the wealthy are being rewarded, people see no way out of this doom spiral. Of course, they are spending less as a result.
People think the economy is stuck where it is and see themselves as the victims of that. Everything Reeves has done has confirmed that fact. It is hardly surprising things are going wrong.
Apparently, Reeves is refusing to make the Spring Fiscal Statement, now scheduled for March 26, into a second Budget to manage the consequences of this. That is another mistake on her part. When you have made a serious error, or the facts change, you should be open to changing your mind. If the facts have changed sufficiently to provide you with the excuse to say they, and not your mistake, are what requires your change of course, a wise politician grabs the opportunity, and changes direction.
Reeves could already be signalling that she might do that. But she is not a wise politician. I am expecting her to stick to her plans when she could do three things.
She could, firstly, redistribute income and wealth to deliver growth.
Second, she could take back control of the Bank of England and force interest rates down whilst also changing the rules regulating utility, rail, phone and other charges so that they no longer run at rates above inflation.
Third, she could make clear that this is the beginning of a process of change where people are made her epicentre of concern. There are many ways she could do this.
She could, in other words, begin to give people hope back.
She could, but she won't.
Maybe it is Rachel Reeves' fault, after all.
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Hum………
Abolish the ‘two child rule’
Increase in Child Benefit
Bring the £10 ‘Christmas Bonus’ in State Pensions and other benefits up to current levels
Reinstate the £2 bus fare
Freeze rail fares
Bring the fuel duty escalator back
A national Council Tax Benefit Scheme
None of these are difficult but could make a lot of difference to people and signpost the likley future direction Government (wont) take
Agreed
One of the best ways to help the low-paid and pensioners would be to increase the income tax threshold to £20,000 and recoup the cost of this by increasing taxes for the wealthy (I’ll leave it to others to decide who ‘the wealthy’ are but my usual response to that is ‘anyone with a larger income than myself’.)
Labour promised to be bold before the election but so far there’s no evidence of anything more than baby-steps. The chancellor is so afraid of suffering the fate of Truss/Kwarteng she is overly pandering to the judgements and reactions she perceives will come from the city.
If our economy is to recover and flourish, she needs to find the boldness Labour promised and visibly start to deliver on it. She needs to speed up and deepen investment in the Green economy, increase incentives for rooftop solar, and insulate the homes of everyone who needs it below a £40k tax threshold. The economy, especially the green economy, needs growth kick-starting.
Redistribution? Universal benefits in kind. The greater their level the lower the minimum wage and tax thresholds can be.
How do you pay for them?
We already have free schooling and health care (sort of).
How about negative standing charges for utilities, paid for by wealthier customers. If you lower tax thresholds by the same amount you can move a lot of it into public funds.
I will muse on that.
The UKs Liabilities have fallen by £1.5 trillion as reported on this blog. If the Chancellor or any other MP cannot read a set of accounts then they should all be sent on training courses so they can understand the Whole of Government Accounts.
https://www.taxresearch.org.uk/Blog/2024/11/29/the-governments-latest-accounts-show-its-debts-fallen-massively/
Again there is no black whole, and much of what John Boxall has stated can be re-instated with no problem caused at all.
“But she is not a wise politician” – substitute “manager” for “politician” & you would be dead right.
Col Smithers often links to “Aurelian” who has coined the phrase “Professional Managerial Class” – PMC (I prefer “Caste”) – but anyway, the point is, she is a cipher, a manager, she acts as she has been trained/groomed and thus does what is expected by those orgs that trained/groomed her. Whilst some may jibe at the use of the word “groomed” I think it is accurate in this case. She is no more capable of questioning/thinking/asking what if? with respect to financial belief systems than… a goldfish.
Thank you and well said, Mike, including for the shout-out.
This also explains why her career and creative writing do not have more light shone on them.
From a chat with my former manager, a City grandee and Tory former Treasury junior minister, Reeves’ former manager around the corner at Threadneedle Street confirmed Reeves’ creative writing. I got the impression that as long as she favours the wealthy, she can sail in peace. This said, I hear of her increasing tetchiness, apparent even in her always wooden manner.
The scary thing is that she seems not to understand the maths on anything.
The employer NIC threshold change impacts the cost of employing someone on 10k part time wages or 24k minimum wage completely disproportionately to someone earning 30k+, and that’s obviously on top of the minimum wage increase in itself.
Any business that sees the low paid as more a cost than an asset is going to shed jobs or reduce future employment.
Slightly tangential, perhaps, but yesterday the FT published a story about Argentina’s improved growth in the third quarter of this year. It says that GDP ‘expanded’ to 3.9% compared with the previous quarter.
It seems to assign the increase to the regime of ‘brutal spending cuts and a fierce deregulation drive.’ Which makes me wonder if Reeves will take note and see it as justifying her approach to spending cuts and deregulation.
The BTL comments are full of jubilant neoliberal commenters
On the other hand, the article also notes, without comment, that this increase in GDP growth fell by 2.1% compared with the same quarter in 2023.
https://www.ft.com/content/c92c1c71-99e7-49c1-b885-253033e26ea5
I can’t help wondering, does this one swallow make a summer or is it a blip…
I wouldn’t necessarily agree that the experience is translatable.
Only last week reports of a massive increase in poverty in Argentina, coupled with increased misogynistic policy and behaviour. My former student, Ana, who was enthusiastic for a change of government, is now part of a women’s resistance group.
Reeves………….
I’ve just finished reading Richard Vague’s ‘The Paradox of Debt’ (2023) and his analysis of private debt and how it has the capacity to even overwhelm and seriously threaten the ability of governments to cope even with all their money making power is very instructive.
His concept of how debt builds up after each crisis (the ‘debt staircase’) and how it can weaken recovery because of high interest rates and insisting on debts being repaid is compelling. The 2008 crisis was a private banking crisis caused by deregulation in part and the over-leverage warnings were not heeded at all – I remember reading these concerns in the Guardian well before 2008 struck (as Vague points out, rather than being a black swan event, the markers were there from day one – it was foreseeable and those that did foresee made a killing instead of stopping the damn thing it seems).
And here is Reeves – the ‘Reeve-cividist’ as I call her because she is intent on learning nothing from the recent past – advocating deregulation again and getting a hard pressed ‘real economy’ to fund its own salvation.
What I cannot stand about her is the lack of imagination.
But then again, to have imagination you need to have empathy don’t you?
I have only ever scam read the book.
It is on my list to read in more detail.
Skimming his introduction, Richard Vague’s book on debt seems very much an accounting perspective – with considerable crossover with Richard’s perspective.
Correct, as I recall
I bought Vague’s book because Steve Keen recommended it.
Three of his suggestions stand out for me:
1. Government needs to watch private debt more closely and intervene.
2. He advocates debt jubilees for certain types of debt – student, mortgage, health. etc
3. The production of more government non-debt money (credit) which I see as MMT – he states that inflation is not a monetary phenomenon.
U.S. based – but also roping in the UK and Japan – I think his conclusion that debt is a good and bad thing is spot on – it makes me think that debt has been weaponised by capital and that this has to stop, they use only one dimension. Also, good debt/bad debt – which sector produced the best debt effects for society? And yes – going and looking at ledgers and accounts – he’s certainly into that.
It is well worth a read and is well researched.
I think the point about the Truss budget debacle is well made. Labour rejoiced an mocked at the time because they (correctly) identified it as another Black Friday event which would cost the Tories the next election.
But more perceptive voices on the left pointed out the problem it implied for a future Labour budget. It certainly seems to have spooked Starmer and Reeves against doing anything remotely radical in their first budget.
Mr McCloskey, you speak of Rachel Reeves’ “first budget” as if there might be another one. I do hope not. She’s a disaster already.
She does seem to be totally inept and unaware of the consequences of the measures she has taken. As someone who now lives in the South West, well outside the Westminster bubble, I’m guessing she has no awareness of how much her NI measures impact the service sector and low wage economy.
My guess is that Starmer/Morgan McSweeney will get rid of her before any Spring statement and blame her for what I suspect were not really her ideas. She’s hardly an original thinker and seems totally unable to read the room. The WFA was badly handled, but nowhere near as devastating as the increases in employer taxes and the resulting job cuts and business failures. And growth was unlikely to happen before she made it even harder. We’re in for a long winter and people have already had enough!
I suspect McSweeney’s funders will have their eyes on two prizes, Chancellor and PM.