Denis Healey has already warned his Labor Party colleagues that they would hear “howls of anguish” from more than 80,000 rich people when their taxes went up. It was 1973. Just a year later, Healey would be Chancellor of the Exchequer in Harold Wilson’s new government, which took over in the midst of a serious recession in the United Kingdom. Half a century later, Keir Starmer, who has inherited a stagnant economy and bare-bones public services after 14 years of Tory rule, hears the same howls, but coming from within his own ranks. Ministers of the new Government and relevant Labor figures cry out about the social cuts and the apparent return to austerity promoted by Starmer and his Economy Minister, Rachel Reeves.
At least three heavyweights of the new Executive have bypassed the head of the Economy and have personally written to the Prime Minister to express their complaints about cuts of up to 20% in the spending plans. This excess of caution casts a huge shadow on the promises of change and growth with which Labor won power on July 4. The Deputy Prime Minister and Head of Housing and Local Government, Angela Rayner; the Minister of Justice, Shabana Mahmood; and that of Transport, Louise Haigh, have been, according to media such as Bloomberg either The Timesthe voices that have led the revolt. Starmer and Reeves have barely managed to quell this protest in the last few hours.
The rebellion, for now, has not gotten any worse. Despite everything, the fact that the letters have been leaked before even reaching the hands of the prime minister clearly shows the discontent. Starmer’s entourage assures that what happened is common in the tug-of-war that the Treasury and the different government departments engage in in the weeks prior to the presentation of budgets. Reeves will announce his first income and expense plans on October 30.
The minister, whose fiscal rigor comes from the years in which she worked in the analysis and studies department of the Bank of England, already promised from the opposition to maintain the commitment to reduce public debt of previous governments, which consists of ensuring that the percentage relative to gross domestic product will decline at the end of the five-year term. If we add to that the “hole” of more than 26,000 million euros that Reeves detected in the public figures as soon as he entered the ministry—a legacy of the conservatives—and the expenses already committed—such as salary increases for public employees— , his department must look under the rocks for a cushion of almost 50,000 million euros to balance the accounts.
Left wing protests
“I want to see how these budgets deploy a strategy that promotes greater investment in our economy, but also a fairer tax system,” claimed John McDonnell, the former head of the Labor Party’s economy, during the era of Jeremy Corbyn, who heads now the protests in the minority most to the left of the parliamentary group. “It will be the way to finance our public services and provide help to those who need it. And also to create a more egalitarian society,” says the veteran politician in the magazine The Big Issue.
Minister Reeves promises her people that the budget will place the greatest burden on the shoulders of the wealthiest. But at the same time it is aware that the British economy has not fully recovered from the catastrophe that was the mandate of former Conservative Prime Minister Liz Truss, when a poorly calculated and poorly planned tax cut sank the pound and skyrocketed the debt. and destroyed the UK’s international credibility.
“The first budget is clearly the credibility budgetin which you have to establish your seriousness and fiscal rigor before the markets, before embarking on long-term investment projects,” defends Sonali Punhani, director of European Economic Analysis at Bank of America before a small group of correspondents in London.
Against the party’s electoral programme, in which Starmer’s team promised not to touch Social Security contributions (what is known as the national insurancepaid by employers and workers), Reeves now suggests that she is willing to increase the share of employers that the previous Conservative Government lowered. “Our commitment was not to increase the tax pressure on workers,” the minister now argues, in the classic play on words with which politicians always try to camouflage a rectification.
His department also warns that there will be a several percentage point increase in the capital gains tax, whenever the sale of the shares takes place. And the tax privilege regime enjoyed until now by non-UK millionaires will be modified.
But all these measures do not respond to the clamor of the unions and the rank and file of the party expressed at the last Liverpool congress, when they carried out a motion in which they demanded an increase in taxes on the richest. Reeves has promised not to touch the income tax or the corporate tax, contrary to what the analysis centers closest to Labor demand.
“The existing tension in many public services – from clogged courts to overflowing prisons and extremely poor local administrations – forces the Government to reverse inherited austerity plans, with a cost that may exceed 24 billion euros. A tax increase on that scale will undoubtedly provoke aggressive press headlines, but it is acceptable in the first budgets as soon as an election is won,” says James Smith, director of the Analysis Department at the Resolution Foundation, whose reports were closely taken into account. by Starmer’s team during the years of opposition.
Both the prime minister and Reeves have joined forces to weather the storm of criticism, but they still must make a greater pedagogical effort, many experts demand, to convince their people that temporary sacrifices are the necessary path for medium-term improvement. of the country’s economy and the well-being of citizens.