22 November 2023

The divide between Labour and the Conservatives has been sharpened

While the Tories prioritise tax cuts, Keir Starmer’s party would prioritise the repair of public services.

He made quite good jokes. He was calmly authoritative and spoke of “compassionate conservatism” as he focused on poorer workers, and pointedly backed established institutions such as the Bank of England: this week, Jeremy Hunt seemed at times less like yet another Tory chancellor, than a prime minister the modern party has repeatedly refused to allow itself to be led by.

The Autumn Statement headlines were well chosen for a struggling party which must face an election next year; the 2p cut in National Insurance which will particularly benefit the self-employed and poorer workers; the 8.5 per cent rise in the state pension; the uprating of benefits in line with with inflation; the unfreezing of local housing allowance. On the overall shape and future of a low growth and higher tax economy, as good a spin was put on things as is humanly possible. Centre-ground Tories were delighted.

But Hunt’s problem, as his shadow Rachel Reeves quickly spotted, is the Tories’ record. The Conservatives will go into the election being judged not on Jeremy Hunt, but on Boris Johnson, Liz Truss and the Tory right. The Office for Budget Responsibility (OBR) expects a fall in real living standards of 3.5 per cent between the last election and the next, the biggest since records began in the 1950s.

Another, not unrelated, issue is the tax take. OBR figures show the overall tax burden is on course to reach a postwar high of nearly 38 per cent in the five years ahead – even after today’s cuts. A big part of that story are of course “stealth taxes”: not raising tax thresholds in line with inflation, drawing millions more low and middle earners into income tax and even the 40p rate. This has increased taxes by £40bn and deals a hammer blow to the preferred Tory narrative of “tax cutting” Conservatives vs tax-raising Labour. Electorally, this may be the final, lethal blow.

If the electorate was naturally forgiving and had a long memory, it would note that the extraordinary circumstances of Covid-19 pandemic and the Ukraine war necessitated extraordinary government support (and an extraordinary bill). But the electorate is not like that. We are influenced more by the here and now, channelled and focused by the mass media; and we worry about what’s ahead. In the past, this lack of historical reflection has benefited a Conservative Party adept at the politics of distraction. Not, I think, this time.

But behind all the headlines about National Insurance, the £9bn tax cut for business – a genuinely big story – and the arguments about growth, there was a giant spectre at the autumn feast. Underpinning all the numbers the Chancellor discussed in the House of Commons, were huge public spending cuts pencilled in for future years, never mentioned, never resiled from.

For unprotected government departments, such as justice, the Home Office, levelling up, communities and housing, real-terms cuts amounting to £19.1bn by 2027-28 are planned. James Smith, the research director of the Resolution Foundation, says this: “Looks completely undeliverable… a total fiscal fiction.”

[See also: Jeremy Hunt has set a trap for Labour]

For an incoming Labour government committed to rebuilding the damaged public realm, this is an utter economic nightmare. Anything less like the country inherited by Tony Blair in 1997 is hard to imagine.

The conundrum Hunt faced was that tax cuts big enough to make a significant political difference would look completely irresponsible; but tax cuts that were even remotely responsible or non-inflationary would not be big enough to be noticed by angry voters already turning their backs on the Tories. It was an impossible dilemma that even this Chancellor, with all his buoyant optimism and energy, was unable this week to resolve.

So we will be left with a highly traditional electoral choice next year: a Conservative Party that, despite its tax-raising record, would still like to cut taxes even across a diminished public realm; and a Labour opposition that cannot, in all honesty, offer tax cuts even to struggling families, while public services remain in such perilous disrepair. That was the choice before this week; the Autumn Statement, which told us nothing radically new, has merely made it sharper and clearer.