Trust. Such an important word in politics. Voters will occasionally forgive bad decisions – even displays of incompetence – by politicians. But they won’t stand for having their good faith abused.
When a government dishonours the vows it made before being elected, the effect on democracy is corrosive. Such duplicity convinces voters that politicians are “all the same” – liars and charlatans in it only for themselves.
The more solemn the promise, the deeper the sense of betrayal when it is broken. People hate being taken for mugs.
Which is why Rachel Reeves must not, under any circumstances, raise income tax, national insurance or VAT in the upcoming budget.
Just 16 months ago, Labour won a landslide – albeit a loveless one – in no small part because it had pledged not to do any of these things. If it reneges on that commitment, the party can kiss goodbye to any remaining hope it has of securing a second term.
Reeve would do well to remember the mistake made by the Tories after they won the 1992 election. Having fought that campaign on a promise to cut taxes, they went and did the very opposite. It was years before they were trusted again.
But there’s a bigger factor here. Tax increases now aren’t just bad politics – they’re also bad economics. Our moribund economy won’t be revitalised through fiscal tightening, whether in the form of tax hikes or public spending cuts. Both ultimately reduce the amount of money in the economy and choke off growth.
But Reeves doesn’t grasp this. That’s because she is a slave to Treasury orthodoxy – and in particular the myth that deficit spending is inherently bad and must be curtailed.
During periods of stagnation, such an approach can be catastrophic, for it sucks life out of the economy at the very moment it needs stimulus. It is counter-productive in the literal sense, hitting employment levels, investment and output.
Instead of being so preoccupied with “balancing the books”, Reeves should instead focus on balancing the economy to serve public purpose. But she has bought the fallacy that a government’s budget is akin to that of a household, and ministers must not therefore spend beyond the nation’s means.
Rachel Reeves' suicidal plan for the Budget has George Osbourne's fingerprints all over it - Paul Embery | Getty Images
Such thinking gives no consideration to the reality that there is no intrinsic reason why governments of currency-issuing nations should ever be short of money.
Those nations may lack many things: labour, materials, land, energy, skills and the like. But not the currency, which its government has the sole authority to issue.
In other words, the British Treasury is constrained only by the availability of real resources, not pounds sterling. So when Reeves tells parliament, as she did last year, that “If we cannot afford it, we cannot do it” she is not only getting it completely back to front but also directly repudiating the dictum of the great economist John Maynard Keynes – once a guiding light for social democratic parties the world over – who famously (and correctly) said: “Anything we can actually do, we can afford.”
Reeves maintains that she wants to achieve a fiscal surplus by 2029-30. That means, by definition, that she wants the government to be removing more money from the economy than it is putting into it.
Just how much damage is she prepared to inflict on our economy – on jobs, businesses, wages and public services – to realise that goal? Such a reckless approach risks driving the economy into a deep recession.
As a member of the Labour Party for over 30 years, I am utterly disillusioned by the inability of this government to take the radical steps necessary to reorder our economy and society.
With a massive majority behind it, this could have been Labour’s 1945-style “New Jerusalem” moment. Back then, Clement Attlee’s Labour government assumed power in a nation still utterly ravaged by war – yet it still managed to create a National Health Service and welfare state and build a million council homes.
With a bit of boldness and confidence, and using its massive fiscal capacity, the current Labour government could do something similar – build the high-quality public services and homes that the nation is crying out for.
At the same time, it could show that it has the interests of British industry at heart, not least by elevating the needs of the real economy – where goods are made and wealth is produced – over those of finance capital.
Instead, it’s as though we still have George Osborne in Number 11. And for what? To please the faceless bond vigilantes and a few anonymous technocrats at the Office for Budget Responsibility.
The impending budget is likely to prove a watershed moment for this Labour administration. If taxes go up, it will demonstrate that Reeves and Starmer have no understanding of what is needed to kickstart our ailing economy. And the government will have signed its own death warrant.
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