When Andy Burnham entered office in July, the football-mad prime minister promised to go on the attack. That ambition calls for a striker at the Treasury, a game-changing chancellor. Unfortunately John Healey’s first budget, on October 28th, was all defence. It dealt with the immediate worries: modest tax rises shored up the public finances, and even more modest handouts eased the cost of living. But the budget left the big problems, whether on reforming Britain’s broken tax system or finding the money for its spending ambitions, untouched.
His government would oversee “the biggest changes in the last 40 years”. Britons fed up with the status quo would “start to believe again”.
On both counts, Mr Healey achieved short-term success but set himself up for long-term failure. If Mr Healey manages to pull this off, he will be doing much better than the French or the Americans. Worse, few believe Labour will stick to its spending plans. It seems unlikely that the government will get that past its spendthrift backbenchers, and Mr Burnham himself wants more money for priorities such as a National Care Service. Yet the budget did little to improve the prospects for growth. There were some good measures, like a plan for building data centres more quickly and a greater focus on making cheap bills the foremost priority of energy policy. The devolution of tax-raising powers to local areas should also incentivise local politicians to push for growth. But Mr Healey could have gone much further. Britain’s sclerotic planning system, choc-a-bloc with veto points, remains mostly intact. The country’s sky-high visa fees put off the world’s brightest from joining British companies. Britons will have to wait until December to find out about the government’s plans to move people from welfare to work. The biggest disappointment was Mr Healey’s failure to reform Britain’s tax system, which disincentivises growth at every turn. He left stamp duty on home sales, which stops people moving to better jobs, untouched. If anything, the chancellor made the system more complicated. More small businesses will be exempt from commercial-property taxes, but adult gaming centres and vape shops are exempt from the exemption. Blame for a lacklustre budget should ultimately be laid at the foot of the team captain, the prime minister. Mr Burnham hopes to win voters over with small treats now and the promise of radical reform later. That misunderstands how governing works. The time for big moves is early, while a government still has authority and years to let its policies pay off before an election. Mr Healey mounted a successful defence. But only goals change games.
The government remains on track to meet its fiscal rules, with debt falling and day-to-day spending covered by tax revenues by 2029-30. The deficit is forecast to halve, from 4.2% this year to 2.1% in 2029-30. Mr Healey delighted in setting a target to spend 3% of GDP on defence by 2030. (He could hardly have done otherwise, having resigned as defence secretary under Sir Keir Starmer over a refusal to set such a target.) Yet he was hazy on how to pay for it, punting the decision to next year’s spending review. The OBR reckons that, under current plans, most departments face real-terms cuts of 2.6% a year in the last three years of the forecast. He failed to remove the high marginal tax rates (like 62% for those earning between £100,000 and £125,140 a year) which stop people from working longer hours. Pensioners on £13,000 a year now face a 53% marginal tax rate if they want to make a bit of money on the side.
The chancellor’s game plan was to show “fiscal discipline” and give “Britain some breathing space on the cost of living”.
Debt is expected to be 96.7% of GDP in 2029-30, up from 95.5% now. he should not be mistaken as a paragon of fiscal responsibility Although it is welcome that Mr Healey did not degrade the public finances further. If the government cannot stabilise debt even outside a crisis like the pandemic, it will have less firepower when the next one hits.
