Labour was clear about its overriding mission before the general election: higher economic growth. The problem for the party is how little of it there is around. GDP rose by just 0.1 per cent in the third quarter of 2024 – the first under Labour – while business activity has shrunk for the first time in more than a year.
There’s further bad news for the government ahead of today’s conference at the Confederation of British Industry (CBI): a survey by the business group has found that half of firms are looking to cut jobs following the Budget while two thirds believe it will damage UK investment. “Tax rises like this must never again be simply done to business,” CBI chief executive Rain Newton-Smith will warn of the employers’ National Insurance increase. “That’s the road to unintended consequences.”
Rachel Reeves will get a chance to reply when she appears at the same conference at 4.10pm today. “I have heard lots of responses to the government’s first Budget but I have heard no alternatives,” she will say. “We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact. But I stand by those choices as the right choices for our country: investment to fix the NHS and rebuild Britain.”
If this argument sounds familiar that’s because it is. “I believe people accept there’s no real alternative,” Margaret Thatcher told the Conservative Women’s Conference in 1980 at the outset of her monetarist experiment (which saw VAT increased from 8 per cent to 15 per cent and interest rates raised from 12 per cent to 17 per cent). It’s also the defence that George Osborne routinely made of his austerity programme from 2010 onwards.
Reeves’s decision to revive the line reflects similar political purposes. First, it’s an attempt to portray the opposition as unserious and uncredible. Cabinet ministers were delighted when Kemi Badenoch recently declared that she was “not against” Labour’s public spending plans without backing the £40bn tax rises to pay for them. This has allowed the government to revive memories of Liz Truss’s voodoo economics (something neither business nor voters want to return to).
Second, Reeves is preparing the ground for the argument that helped both Thatcher and David Cameron secure re-election: it hurt but it worked. “You have to do the hardest stuff at the beginning of the parliament so you can reap the rewards at the end of it,” a Labour aide told me, casting Reeves’s Budget as an antidote to the “gimmicky, short-term” approach pursued by recent tax-cutting Tory administrations.
But will Labour enjoy the recovery it hopes for? That will depend as much, if not more, on external events as internal ones. The Office for Budget Responsibility’s growth forecasts for future years look gloomy (Reeves will repeat today that she is “not satisfied” with the economy’s performance). Yet they would look gloomier still if the impact of Donald Trump’s planned tariffs was factored in. The UK, as an open economy, is particularly exposed (the National Institute of Economic and Social Research has projected that GDP would be 0.7 points lower over the next two years).
That’s why averting this outcome will be a priority for the government (David Lammy’s warm words towards Trump in my recent interview reflect economics as well as geopolitics). Should it fail, the budgetary crunch that already lies ahead – spending on unprotected departments is due to fall by 1.1 per cent in real terms after 2025-26 – will be far worse.
“I do not plan to have another Budget like this,” Reeves will say today. “I have wiped the slate clean.” To some in Labour that resembles a hostage to fortune. If a Trump presidency is as costly as feared, this year’s Budget won’t mark the end of tough decisions – but merely the beginning.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.
[See also: Ireland’s liberal centre conceals something darker]
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