When the Office for Budget Responsibility had finished grovelling and prostrating itself for leaking the entire Budget in advance, it made a genuinely eye-popping admission about what was actually in it.
They said that, after they’d downgraded their growth forecasts to match Britain’s lacklustre economic performance since the 2008 banking crisis and the Covid pandemic, the combined impact of Rachel Reeves’s Budget on those new, lower growth projections was… nothing. Zero. Zilch.
Even worse, it wasn’t a ‘net zero’, where government ministers had made some big structural reforms which created benefits that they’d spent somewhere else. It was an absolute zero, because there wasn’t a single Budget measure which had a big enough impact to move the OBR’s dial at all.
For a Government which has made restoring growth its number one priority, it’s a truly disastrous admission. There should be alarm bells and klaxons going off in the Treasury, and ministers should be running around with their hair on fire.
But that isn’t what’s happening. Instead, Rachel Reeves has put up taxes and spending, taking a much larger slice of the country’s economic cake without the foggiest clue how to bake a bigger one at all.
The reason, of course, is Labour’s mutinous backbench MPs demanding extra spending on everything from the two-child benefit cap to school breakfast clubs, as the price for the Prime Minister and his Chancellor keeping their jobs.
It’s a significant problem, but it doesn’t have to be fatal. Every successful Chancellor expects to be buffeted by economic squalls and political shocks. Every successful government knows it will have to make short-term tactical compromises on the way to delivering long-term, strategic wins. The trick is to make sure those tactical trade-offs don’t divert you from scoring the big strategic goals. Even though Rachel Reeves is up to her neck fighting alligators, she can’t forget that her Government promised to drain the swamp.
There was nothing stopping the Chancellor from adding some sweeping, swamp-draining structural economic reforms into her Budget, on top of the tax-and-spend smorgasbord she announced on Wednesday. She could take her pick from a long list that CapX has featured in the last few months, which wouldn’t cost taxpayers a bean but would make the OBR forecasters sit up and take notice. Things like reforming welfare so it always pays to work, changing childcare so fewer parents have to put their careers on hold or renewing Britain’s industrial strategy to create the cheapest and most competitive business environment in the G20.
Growth-creating structural economic reforms may not need lots of taxpayer-funded spending, but they carry a high political price in overcoming powerful vested interests that are doing rather nicely from the current regime. Making these changes is also hard and, eventually, many governments reach that dead-eyed stage where they’re running on empty. But it usually takes years before ministers run out of ideas and political puff, not the 18 months Labour have had so far.
So let’s pray it isn’t that, and instead Rachel Reeves gets a second wind. Regardless of party-political views and loyalties, we should all want her to the deliver the big, strategic promise that her Government made to generate economic growth. That’s her equivalent of draining the swamp and, if she fails because she’s distracted by short-term battles, the alligators will get her in the end.
This article is the latest in a fortnightly series of policy proposals published in CapX from John Penrose and the Centre for Small State Conservatives.
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