In my 50 years writing about Britain's finances, never have I been more shocked by the incompetence of a government. Labour have crippled the economy after a series of blunders and U-turns... and this is why it could get worse: ALEX BRUMMER
‘It didn’t have to be like this.’ No phrase better captures the tragedy of Labour’s ruinous stewardship of our economy.
Two growth-destroying Budgets and multiple U-turns by the Chancellor Rachel Reeves have sapped confidence and crippled investment – the keys to future growth.
From flip-flopping on inheritance tax (IHT) for farms and small businesses to scrapping winter fuel payments for pensioners and cutting welfare for disabled people, drift and ennui have epitomised this lacklustre administration.
Of these policy disasters, the most recent and in some ways the worst was the cynically timed announcement on Christmas Eve that the Government will now abandon its punitive stance on IHT for farms and private businesses, which had been imposed in the Chancellor’s first Budget in October 2024.
The threshold at which the levy will apply will now more than double to £2.5million – a concession that will benefit not only rural communities but also small family businesses and entrepreneurs. Yes, many will welcome the change – but it was nevertheless a huge and unexpected adjustment that speaks of chaos in the governing regime.
Worse, the U-turn was not announced by Reeves or her boss, the PM, but instead the hapless Environment Secretary Emma Reynolds – not exactly an authority on public finances – was dispatched to deliver the glad economic tidings.
How did the Government get itself into such a mess in the first place? Ours may be a predominantly urban society – and Labour a largely metropolitan party – but rural life is a part of our cultural fabric. Taking on the Archers, Countryfile and Emmerdale classes was madness, and that was before the Government’s more recent announcement that it plans to ban trail hunting, a measure few were crying out for.
Having written about Britain’s public finances for more than five decades, and seen more than my fair share of Chancellors come and go, I am shocked at little. But I find the sheer incompetence emanating from both 10 and 11 Downing Street scarcely believable. As the months have gone by, what has struck me more than anything is how naïve our Chancellor and Prime Minister have been on one measure after another.
Take their bungling failure to anticipate the damage that hiking employers’ National Insurance contributions in last year’s Budget would do to business investment and confidence. That £25billion levy, which came into force this April, represents the biggest head-on blow to growth imposed by any Chancellor in modern times – and, as any A-level economics student could have told them, it has had a devastating effect on jobs, especially in the young.
Two growth-destroying budgets and multiple U-turns by the Chancellor Rachel Reeves have sapped confidence and crippled investment, writes Alex Brummer
The most recent policy disaster, and in some ways the worst, is the cynically timed announcement on Christmas Eve that the Government will now abandon its punitive stance on inheritance tax for farms and private businesses
Or what about the U-turn on winter fuel payments? Here, the civil servants at the Treasury, who retain their comfortable jobs whatever government is in power, lured Reeves into an obvious trap. To such officials, giveaways and tax ‘reliefs’ that cost the Exchequer money but are hard to justify in economic terms should always be first for the chop.
The winter fuel allowance has long been such a ‘deadweight’, to use their jargon: it was enjoyed by all pensioners, not just the frail and vulnerable shivering in blankets in their homes. There may have been some ideological ‘purity’ in amending it, therefore, but the political cost of scrapping it was always going to be immense – and probably not worth the results.
Reeves initially claimed on taking office that she had no choice in means-testing winter fuel payments, having ‘discovered’ a £22billion ‘black hole’ in the public finances – an allegation disputed by many experts. It may have seemed like low-hanging fruit, but a shrewder Chancellor would have steered well clear of antagonising such a politically motivated cohort.
Meanwhile, abolishing stamp-duty breaks for first-time buyers and Help to Buy schemes followed the same humiliating pattern. Doing so inevitably depressed demand for new homes, making a mockery of Labour’s manifesto pledge to build 1.5million new houses in their first five years in office – while further worsening prospects for the young.
Starmer and Reeves more or less knew they would win the election. They had years to prepare for the lofty offices they now occupy, developing policies that could have combined the typical Labour redistribution with growing the economy to pay for it all.
Instead, the only measure they seemed truly set on – and which they wasted no time in inflicting on the middle classes – was that vindictive VAT raid on private school fees.
The contrast with the Blair-Brown government, and others, could not be more stark. Within days of taking office on that sunlit May morning in 1997, New Labour implemented a suite of decisive reforms: granting independence to the Bank of England and imposing windfall taxes on both the privatised utility firms and the surpluses in company pension funds. All these had been carefully thought through and costed – even if some, like the pensions raid, turned out to be wildly expensive for individuals in the long run.
Taking on the Archers, Countryfile and Emmerdale classes was madness, writes Alex Brummer
Similarly, I recall speaking with Gus O’Donnell, the former Cabinet Secretary and head of the civil service, when the Tories and Lib Dems came to power in 2010. O’Donnell was daunted: like more or less everyone working in Whitehall, he had zero experience of policymaking for coalition governments (Britain hadn’t seen one since Winston Churchill’s wartime administration of 1940-1945). Yet within days, he and his colleagues had stitched together a coherent programme to tackle a looming budget deficit that successfully melded two very different agendas from the governing parties.
One key purpose of the civil service is to analyse manifesto commitments and warn incoming ministers of their consequences. That obviously failed to happen when Starmer and his cronies reached Downing Street. A largely Left-wing Whitehall machine, relieved that Labour had won and still reeling from a Brexit they despised (and further horrified by the Liz Truss catastrophe), fawned on their new masters instead of scrutinising them.
I saw proof of this for myself: days before Reeves delivered her first Budget, I was in a taxi with a senior Treasury official. He was notably on the defensive, extolling the Chancellor’s new ‘iron clad’ fiscal rules and waxing lyrical about the projected £9.9billion of fiscal ‘headroom’ she had given herself – the gap between government borrowing and spending. The fact that this margin was likely to be grossly inadequate given that annual UK government spending totals some £1.2trillion never seemed to cross his mind – and sure enough, within months, Reeves’s precious ‘headroom’ had been utterly wiped out by higher borrowing costs.
It’s clear something has gone badly wrong at the heart of government. I suspect Reeves’s political career will soon be over, and Starmer’s too. That should be a huge relief to all of us: the country needs a Chancellor genuinely growth-minded and willing to take on the entrenched fiscal orthodoxy of Whitehall.
And Britain is not sunk – yet. We remain a brilliant nation for science and technology. That the economy grew by a meagre 1.1 per cent last year, despite the profound incompetence of the Chancellor and Prime Minister, is a tribute to the resilience and enterprise of Britain’s great entrepreneurs and companies.
But, as I said, it didn’t have to be like this. Many more jobs might have been saved – and the country far better-off – had ministers and mandarins shown greater courage in the face of Reeves and Starmer’s multiple misjudgments. My prayer for the New Year is that they all wake up – before worse damage is done.
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