No, the gentleman in Whitehall doesn’t know best

Labour say they’re a pro-growth party, but this claim is incompatible with their plan to tax and spend

Rachel Reeves’ Budget is historic. The flexible, relatively low-tax economic model of the last forty years is over. With socialist Labour, we are getting a decisive shift to a statist, high tax and spend, low-incentive economy.
If you doubt it, contrast Rishi Sunak’s 2022 Mais lecture as Chancellor and Rachel Reeves’ speech today. Sunak spoke of boosting private sector investment and R&D. “Economic success comes from people and businesses – from individuals given the freedom to pursue their own ideas in their own interest in their own way.”
The Conservatives’ implementation of this vision was certainly, to put it charitably, uncertain. But can one imagine Rachel Reeves saying such a thing? Would Keir Starmer even understand what the words mean? Yesterday’s Budget was about taking economic power away from you, the individual, and putting it in the hands of the State. It was all about extra spending, more taxes, and a bigger deficit. Public spending and investment go up, business investment and private consumption – that is, what you have to spend day to day – falls.
Reeves believes the man in Whitehall can spend the pound in your pocket better than you can. But look at the NHS, HS2, the £300 million spent on the planning application for the Lower Thames Crossing, pointless windmills and solar farms, Great British Energy, the “National Wealth Fund”, Christmas coming early for train drivers, £22 billion on carbon capture and storage (which we don’t even know works yet) – and ask yourself whether you believe her. All this junk spending – and we still aren’t going to dual the A1 to the Scottish border.
Today’s £40 billion tax rises take the tax burden to 38 per cent of GDP, higher than the Attlee government. Yes, that’s right. Even in the economy’s worst, most catastrophically dysfunctional periods in the 1970s, the government didn’t take as much money as it does now. (Let’s not forget, by the way, if we were still in the EU, we’d have to find another £15 billion plus to pay them too.)
Most of the tax rises come from employer National Insurance contributions, a measure that will either reduce incomes or destroy jobs or both, and hit the lowest paid hardest as the contributions threshold falls. The rest comes from taxes on ambition, a characteristic with which Labour evidently has no sympathy – higher capital gains, higher inheritance tax that will start to destroy family farms and family-owned businesses, and higher stamp duty.
This is why it’s so laughable for Reeves to claim this is a Budget for growth. Even the Office for Budget Responsibility, hardly an enthusiastic proponent of incentives and economic freedom, says that, while there will be a small sugar rush this year and next, in every year thereafter projected growth per capita actually falls. That is, this budget worsens – yes, worsens – the productive capacity of the British economy. “This Government [is] boosting long-term economic growth”, says Reeves. Has she even read her own Budget?
Reeves has got the Treasury’s Budget document to claim, laughably, and bafflingly, that “there is mixed evidence linking a country’s tax-to-GDP ratio and growth performance and there is no causal link between the two”. Set aside the fact that, if there is “mixed evidence” linking the two, then surely some of that evidence says there is, in fact, a link.
But the real world tells you the same thing as your common sense. Tax does matter. The Treasury points out that the tax burden is still lower than Germany, France, and Italy. Big deal. Check out their growth performance. We can’t be benchmarking ourselves against them. Look instead at Poland, with a tax burden 4 per cent of GDP lower than ours, and catching us up fast. Or look at the US or Australia, with tax burdens lower still, and outstripping us and old Europe for many years now.
Of course tax isn’t the only thing. But it’s obvious that, when it’s high, people have no incentive to create wealth and every reason to turn to the government to do it for them at others’ expense. That’s why the productive capacity of the country declines. And that’s what we will see from this Budget.
“My belief in Britain burns brighter than ever”, says Reeves. Much more of this, and the only thing that’s going to be burning bright is the wreck of the British economy.