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Perhaps Rachel Reeves is telling the truth. Perhaps, apart from the limited commitments to increase tax on oil companies, non-doms, carried interest and private education, Labour is not going to introduce tax bombshells in a first Budget in the autumn.
There would be nothing more classically 1990s New Labour than promising economic stability, sticking broadly to inherited Conservative spending plans and enduring NHS winter crises. Until the March 2000 Budgetwhen NHS spending was increased by 6.1 per cent above inflation for four years, Tony Blair and Gordon Brown spent almost three years blaming poor public services on the Tories and preparing the ground for an injection of public funds.
Reeves appears to be following the playbook, although she is likely to need a little more money to grease the wheels than she suggests. But this is not as difficult as many people believe.
In my last column I suggested the government nudge the Bank of England into limiting the interest paid to commercial banks on the money it created under the quantitative easing programmes. Reeves has brushed the idea aside, saying she did not think such a change would be “without its dangers”. To extend the 1990s comparison a little further, just as it was wise to parse Brown’s statements with great care, so we should note that the shadow chancellor has not ruled out a safe curtailment of some of the subsidies paid to commercial banks.
The Labour manifesto committed the party to lower public debt as a share of GDP by the fifth year of the forecast. This allows a more sensible definition of debtremoving any pollution from BoE asset sales. It would triple fiscal headroom to £26bn under my calculations and enhance the independence of the BoE from fiscal consequences.
On any interpretation, however, Reeves has now ruled this out. But all is not lost on borrowing either. A similar effect, in much more opaque form, can be achieved if the BoE limits quantitative tightening when it next decides in September. Bank governor Andrew Bailey has already indicated the BoE will get to a steady state of asset redemptions in the next few years, in which case, the bank’s actions will stop increasing debt in the 2030s, which by then will be in the government’s five-year window.
The third broad category for increasing spending without raising taxes is to get the private sector to do the spending. This is also very New Labour. Of course, no one should be fooled into thinking that the private sector will do this for nothing. It will demand a reasonable return. Changing regulations quickly to offer more generous terms on renewable investment promises, and changing planning requirements on onshore wind, all have the scope to encourage private finance.
Only obsessives will care that this is labelled private rather than public investment. Sensible people will remember the private finance initiative and worry about the flexibility and value for money of such contracts — but these are compromises that might need to be made. Great British Energy, for example, will be a public company on the government’s accounts, but its actions will be to “partner with industry” in securing investment.
You might ask why a prospective Labour government should feel the need to engage in such wheezes. Why not just be upfront with the public about the way we set monetary policy, the safety in a little more borrowing and, yes, the need for all of us to pay more tax before 2030 to ensure an ageing society can enjoy decent public services?
For the answer, perhaps we should look at ourselves, and our previous record in voting to have our cake and eat it.
chris.giles@ft.com
