The metaphors available for describing Rachel Reeves's 26 November Budget are plentiful, but it is hard to get past allusions to fiscal drag. Having done everything possible to avoid breaking Labour's manifesto pledge not to raise headline tax rates, the chancellor deserves the title. She has taken fiscal drag to a heady level: freezing personal allowances and thresholds for an exceptionally long period, pulling more people into the tax system, and into higher tax bands too.
The share of national income taken by tax will edge to a new peak. But this does not capture the full picture. Another metaphor presents itself: Reeves the fiscal magician. She has already beaten the OBR forecasts once, gaining enough fiscal headroom to avoid rate rises this year, and her plan is to do so again before the next election, avoiding, or so she seems to hope, having to impose the real pain she announced in the Budget.
The long stagnation set in after the financial crash, was worsened by George Osborne's austerity, and reached its peak in the turmoil of Liz Truss's premiership. Reeves's measures do little to stem the stagnation. Even the sensible parts, such as the beginnings of planning reform, are oversold.
But neither economic-gravity-defying-magic nor fiscal drag are the real story. It is that the tricks and tactics don't change enough, contorting an already fiendishly complex tax system into even more elaborate shapes, sustaining the collective fantasy that Britain can have the services it wants, at the scale it wants, without facing up to how we pay for them. More of the same in other words.
On our first test of the Budget then – whether it put the public finances on a stable long-term footing – the chancellor has done respectably, though not spectacularly. But on our second test – whether she has taken meaningful action to lift Britain out of its dismal post-2008 economic malaise – the answer is a resounding no. The long stagnation set in after the financial crash, was worsened by George Osborne's austerity, and reached its peak in the turmoil of Liz Truss's premiership. Reeves's measures do little to stem the stagnation. Even the sensible parts, such as the beginnings of planning reform, are oversold. She claimed they have been delivered. They have not yet and even before being implemented have been watered down, leaving the reforms weaker than originally planned. Beyond that, pre-announced billions for Heathrow and mere warm words on transport for everywhere else (the North watches and waits again), there is little resembling a serious growth strategy.
Our third test concerns the local and sub-national dimension. In a recent fantasy Budget piece for this magazine, I argued that the chancellor should invite England's mayors, regions, and city-regions to play a far greater role in the nation's growth and reform agenda. Here, Reeves has taken a step or two in the right direction. The new £500m Mayoral Revolving Growth Fund, £902m over four years for a new Local Growth Fund, and the introduction of an overnight visitor levy all signal a willingness to let the newest institutions of English governance shoulder more responsibility. And, partially hidden in the documents is a quiet but maybe significant revival of Total Place. If allowed to grow into a mature model of public service reform rather than becoming, as last time Labour tried it, a stillborn victim of national bureaucracy, it could mark the start of one of the most important spending moves in decades. We shall see.
There is therefore much to welcome locally. But the picture darkens quickly when we come back to tax. Early analysis suggests that change to business rates, despite being billed as a high-street lifeline, may in practice work against that objective. That said, there is more positive mood music on business rate retention.
A full revaluation of council tax is an urgent national necessity. The chancellor was right that a Band D home in Darlington or Blackpool pays more than a mansion in Mayfair. But the way property prices have changed since valuations were done in 1991 and the impact this has on local tax bases is such that there is a sort of unfair lottery in who pays what and where. Based on what we know now, it isn't obvious how her reforms change matters. Instead, the chancellor has opted to introduce new top bands. Sensible in principle. But how can government know which homes are worth £2m or more without first valuing all homes? The result will be a selective, partial revaluation, a gift to the appeals industry. All for a rather small tax take. Unless this opens the door on full revaluation, the more fundamental question of how much tax each property should fairly pay remains unanswered. And where does the extra revenue end up? Local authorities will collect the surcharge ‘on behalf of central government'. The best-case scenario seems to be that this will come back as grant. One of the few big local tax levers looks less local post-Budget.
The Budget, then, offers fiscal drag dressed up as prudence, stagnation, and weak performance rather than a growth strategy, and local empowerment that may or may not survive contact with central government's desire for control. The title of the 1997 Labour Manifesto comes to mind: ‘New Labour: Because Britain Deserves Better'.
Mike Emmerich is founding director of Metrodynamics
