As the Labour faithful assemble in Liverpool, the thoughts of Chancellor Rachel Reeves will be on the early draft of the Office for Budget Responsibility’s (OBR) forecasts for productivity, growth and the hole in the public finances.
It is unlikely to make easy reading. Reeves endowed the OBR with extra authority soon after taking office but is not pleased with current shenanigans.
For almost its entire existence the OBR has been consistent in its assessment of UK productivity, leaving it all but untouched, irrespective of the shape of government.
It has chosen the start of Labour’s second year back in office, with the bond markets on tenterhooks, to rethink UK productivity, with a downgrade certain.
That can only make it harder for the Chancellor as she sets about closing a budget shortfall, thought to be in the region of £30billion. Some temporary relief and fun for the Government has been provided by less-than-secret leadership contender Andy Burnham.
His New Statesman comment about not being ‘in hock’ to bond markets and a pledge of more nationalisation of utilities has allowed Keir Starmer to unleash his party’s favourite weapon. Three years after the Liz Truss fandango the Government’s battle cry is: ‘We don’t want a repeat of that.’
Better together?: Some temporary relief for Rachel Reeves has been provided by less-than-secret leadership contender Andy Burnham
How quickly they forget how a Bank of England intervention, to rescue pension funds, and U-turn mini-budget from Chancellor Jeremy Hunt turned the tide. It even left some room for a national insurance cut for working people.
ID cards are a costly distraction, but deemed necessary given the public frustration with failed illegal migrant initiatives.
Delegates at the party conference will be much more interested in lifting the two-child cap on family benefits and ideas for cutting fuel bills ahead of the winter. After the winter fuel allowance debacle, Labour wants to show it is not a heartless party after all.
Understandably, the bond markets are nervous. Labour promised the highest growth in the G7. There is little chance of that, for the moment, with the US economy still expanding.
Britain can claim top place among the rich nations for the biggest increase in annual consumer prices and the highest bond rates. Reeves may be focused on the OBR, but traders will be staring back at the podium in Liverpool. To all intents and purposes the current fragility of the long bond boxes the Chancellor in. The last effort to rein in public spending, by taking a relatively small bite out of the welfare budget, ended in an inglorious U-turn. Higher taxes look to be the only alternative.
As might be expected at a Labour gathering, there will be a mistaken belief that shortfalls can be made good through more wealth taxes, attacks on pension benefits and clobbering the banks. Even if such entrepreneurism-sapping policies were to be adopted, they would go nowhere near closing the hole in the public finances.
Labour’s refrain to critics is to ask what they would do. But it is the governing party which has the duty to meet the fiscal rules it has set itself. If, as it so often claims, it wants more growth, it could achieve its objective by abolishing stamp duty on share trading and housing.
It could restore tax breaks such as Rishi Sunak’s double expensing for capital investment, and extend reliefs to digital investment and AI.
That is infinitely better than relying on sclerotic infrastructure spending to deliver a spark which will take years to ignite.
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