Can somebody please tell the Labour party that they won the election? Most people I know are relieved and delighted that the Conservatives have got their comeuppance; but the relief that Labour is finally back in office is tempered by apprehension that the spectre of Philip Snowden is haunting them all these years later.
An iron – Labour – chancellor almost 100 years before Rachel Reeves (briefly in 1924 and then between 1929 and 1931), Snowden, after early popularity with the party and the trade unions, became a victim of the “Treasury view” of the day: balance the budget at all costs, rather than balance the economy.
I sincerely hope Reeves is not in the same mould, but the early signs are disturbing. Even though she gave us warning that she expected the economic inheritance from the Tories to be dire, her recent comments remind one of Capt Renault in Casablanca: “I am shocked – shocked – to find that gambling has been going on in here.”
All right, the inheritance may have been even worse than expected, but, as Paul Johnson of the Institute for Fiscal Studies points out, most of the “black hole” was already visible, and part of it is accounted for by her own spending decisions, announced last week.
It seems to be a moot point whether the Office for Budget Responsibility was sufficiently informed by Treasury officials of the extent of the pre-election deterioration in the state of “the books”. These are the very same officials who now find themselves reporting to the new chancellor.
These are deep, even murky, waters. There are suspicions that Treasury officials were leaned on over what they could reveal in the run-up to the election. It is therefore most timely that the former civil servant Alun Evans, principal private secretary to three cabinet ministers, has explored the complications of the crucial relationship between ministers and civil servants in his new book The Intimacy of Power.
The public spat between Reeves and her predecessor Jeremy Hunt has been most unseemly – indeed, I cannot recall anything quite like it in my long career writing about chancellors.
But, frankly, Reeves has shocked those of us who were hoping for an immediate lifting of the two-child cap on child benefit, which is causing severe poverty for hundreds of thousands of families. And it is almost unbelievable that she refuses to implement Sir Andrew Dilnot’s recommendations for a limit on the contributions people have to make for social care in old age. The “savings” are minimal by comparison with the £20bn of tax cuts introduced by the Tories before the election – opposed by Labour at the time but now being allowed to stand, thereby making a massive contribution to that black hole.
Apart from one’s disgust at these particular decisions, there is the question of the entire stance of the chancellor’s macroeconomic policy. Sadly, she seems to have retreated from the commendable position she took when delivering the Mais lecture as recently as March.
Then she boasted that a Labour government would not be hampered by fiscal rules that inhibited the investment which was a necessary condition of achieving faster growth. There had to be a long-term view, and well-founded long-term borrowing for investment projects that were costly to start but brought economic dividends in due course.
Yet here we are with the same Reeves perpetrating the same “household economics” as Margaret Thatcher – disgust with whose policies led Reeves to go into politics in the first place: “When household budgets are stretched, families have to make difficult choices. And government needs to do the same.”
Governments are not households, but the chancellor’s false analogy damages households hoping for the lifting of the cap on child benefit.
So, we have a Labour government, with a huge majority, cutting back on the big public-sector investment projects it is supposed to nurture. I’m not making this up. Reeves says: “If we can’t afford it, we can’t do it.” John Maynard Keynes once observed: “Anything we can do we can afford.”
Moreover, because we are not in the EU, we cannot take advantage of the enormous scope that would be available if we still had access to the European Investment Bank, whose lending usually leads to about three times the investment financed by the initial loan.
The economic damage wrought by Brexit continues. Our investment and growth prospects would benefit enormously if Starmer and Reeves abandoned this policy of “no return to the customs union, single market or freedom of movement”. I repeat what I have said before: the Labour manifesto commits it to removing unnecessary barriers to trade. But Brexit is the most formidable barrier of all!
