Will Labour pay for its inconsistency on tax and spend?

If public services fail to improve, the government will be politically vulnerable.

“There’s no point in the Chancellor delivering the Budget speech, it’s all been briefed already.” It is a common refrain, said for many years now. I used to hear the complaint being made when I was a Treasury minister, but would be aware that there was still plenty left to be said. Perhaps that is the case now, but I suspect even today’s Treasury ministers are surprised at how much has been announced.

There are, however, good reasons why so much has been pre-briefed. This is going to be a big Budget; first budgets after a change of government tend to be. These occasions are a moment for a new Chancellor to set out a sense of direction, not just for the year ahead but for an entire parliament. It is also, usually, a point of maximum power. A new government usually has the benefit of a political honeymoon as the country wills it to succeed, relieved that its predecessors have been removed. An election is still some years away, meaning that there is little need to chase short-term popularity. Backbenchers are still disciplined.

The political circumstances may often be propitious, but the economic circumstances usually are not. A change of government typically follows an economic crisis, which will have also left the public finances in a state of disrepair. (The exception was 1997 where the economic crisis occurred early in the previous parliament. The necessary work to restore the public finances to stability had been completed by the time the country went to the polls.) Incoming governments, therefore, have little choice but to increase taxes or cut spending or do both, and this government is no exception. This requires the public to have their expectations managed.

Given everything we have been told in recent weeks about the Budget, we can make a relatively confident prediction of its broad shape. Labour will spend more on public services than the plans it inherited but not enough to satisfy everyone. The higher current spending will be paid for by higher taxes. To raise this revenue, there will be an increase in employers’ National Insurance Contributions (all but announced last week) plus some tax rises on the wealthy. There will also be higher levels of capital investment, funded by higher levels of borrowing. The Chancellor can do this while complying with the fiscal rules she has inherited by changing the definition of debt (announced last week) but will sensibly not make use of all the potential headroom.

Assuming that this is correct, this is a consequential agenda. Higher spending, higher taxes, higher public sector investment, higher borrowing. Presumably, many Labour supporters will consider this to be precisely the type of Budget that the party exists to deliver.

The problem is that this was not the agenda put forward to the British people at the last election. At that point, Labour said that it would be able to stick largely to Jeremy Hunt’s spending plans. Beyond the limited tax rises that it had promised on non-doms, private schools, private equity and oil and gas firms, it claimed that no others would be needed. As for the fiscal rules, no argument was made that they needed to be amended to permit higher levels of infrastructure spending. Today, higher spending, higher taxes and higher borrowing are presented as unavoidable necessities; in the summer they were baseless Tory smears.

This makes the Chancellor’s task harder. Public services were always going to require funding beyond the numbers set out in Hunt’s spending plans, as plenty of people have long argued, and this was always going to require higher taxes. But that is not what the public were told when they voted, which is why the Treasury has been working so hard to prepare the ground in recent weeks. It has been a dramatic – if predictable – change of direction and could not wait until the Budget speech.

Even with all the pitch-rolling, the charge of inconsistency could prove to be toxic. There are, however, some grounds for optimism for Labour. Polling suggests that much of the electorate would be willing to pay more in tax for better public services (although whether such sentiments survive contact with reality can be questioned). There is also widespread ignorance of tax incidence (who really bears the economic cost of a tax, rather than who makes the payment to HMRC). Employers’ National Insurance is as much a tax on working people as any tax, but many will not notice their wages adjusting downwards as a consequence of the measures. But above all, the Budget of 2024 will be judged at the time of the next election by whether living standards are rising and public services improving.

If Labour succeeds in delivering these objectives, concerns over the lack of candour will be forgotten. But the policy inconsistency has raised the stakes. At the next election, the accusation from Labour’s opponents will be a straight-forward one – “same old Labour, always spending, taxing and borrowing more”. It will be hard to refute the charge, given that it was an agenda denied before the 2024 general election and then pursued subsequently. Rather than deny it, Labour will have to argue that the higher spending, borrowing and taxes have worked.

And maybe they will. But if, for whatever reason, the economy performs badly or public services fail to improve, pursuing a different strategy in office to the one on which they were elected leaves the government politically vulnerable.