In the run-up to the last general election, Rachel Reeves was sold by Labour’s media supporters as a super-smart economist with a plan to restore growth to the British economy. She had the ideas and experience, not least at the Bank of England, to make a real impact. Less than a year later, however, she is clearly damaged goods. Her first Budget was a catastrophe, hammering businesses with a steep rise in employment taxes that destroyed jobs, pushing through changes to the non-dom regime that have driven entrepreneurs out of the country in record numbers, and leaving far too little fiscal headroom to allow for any leeway on spending.
The prime minister has already had to step in and reverse her cuts to the winter fuel allowance, humiliating his chancellor in the process, and her planned savings to the spiralling welfare bill are facing fierce opposition from backbenchers. Reeves appears to have given up on growth and has no strategy left. She clings on to her office, but her reputation is in tatters.
Deputy prime minister Angela Rayner has stepped into the vacuum, with a series of clearly carefully planned leaks that set out a very different agenda for the economy. It emerged that she wrote to Reeves in the spring with a long list of tax rises that would mean that spending did not have to be cut. She has set out a plan for cutting child benefits for the middle class, a move that would allow more money to be spent elsewhere. And it probably won’t be long before she is setting out an agenda for spending as well. In effect, she is now making all the political running. Whether she is chancellor or not does not make much difference. She is setting the agenda.
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What do Angela Rayner’s plans mean for Britain?
That should terrify all of us. Rayner is an old-fashioned tax-and-spend socialist, at a time when the country is already close to going bust. Just take a look at the list of tax rises she thought would be better for the country than the very modest savings to the welfare bill that Reeves proposed.
She wanted to extend the freeze on the threshold at which people would start paying the 45% rate of income tax, dragging many more people into the top rate. She wanted to scrap inheritance tax relief for investors in Aim shares, effectively destroying the junior market. She wanted to scrap the tax-free allowance on dividends even though it has already been reduced to a mere £500 a year, even though that would mainly hit small, private investors. The list went on and on. It amounted to a whole series of extra levies and charges on what little remains of small businesses and private investment in the UK, punishing anyone who might be foolish enough to have built up any wealth.
Her other plans were just as punitive. She demanded the government claw back child benefit from any family where one partner was earning more than £50,000 a year, hardly a fortune for anyone trying to raise a family. Rayner has not set out any plans for spending yet.
But it’s not hard to work out what she will be in favour of. Her manifesto would probably include yet more spending on green energy, on nationalising utilities such as water and rail companies, on higher wages for the public sector without any improvements in productivity, on higher welfare payments, and lots of targets and controls dressed up as either an “industrial strategy” or “protecting the consumer”. It will be a very old-fashioned socialist mix.
Reeves and Keir Starmer may be in too weak a position to resist her. Reeves gambled on a tax-raiding Budget that would fix public services and get the economy growing again. It has clearly failed. The economy has stagnated, and the NHS is still in deep trouble, and neither the PM nor his chancellor appear to have answers to that other than to make cuts in public spending. Into that vacuum, an alternative was always going to emerge. Yet Rayner’s plans are economically illiterate and will only make the crisis even worse. But that won’t make any difference to the Labour backbenchers, the trade unions, and the party members, all of whom matter for deciding the direction that the government takes.
There is no escaping the reality that Rayner is already taking charge of government policy – and that is a very frightening prospect for the British economy.
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