The 1970s are making a notable comeback – not necessarily in reputation, but certainly as an object of interest. Rachel Reeves’ budget is poised to become part of that “decadology”, primarily because her tax changes mark the biggest shift since Margaret Thatcher slammed Labour for its “genuine socialist” fiscal policy in 1975. Today’s economic turmoil – driven by war-induced inflation and a frayed social contract – has rekindled the relevance of that era. Yet there’s a key difference: the 70s birthed austerity, while Ms Reeves is opting to spend her way out of the current crisis in public services.
In Labour’s first budget since 2010, Ms Reeves unveiled about £20bn a year in tax increases on businesses and the rich, aiming to reverse more than a decade of decline in the British state. Her plans also raise borrowing by the same amount annually, spooking some in the City. This allows for an increase in spending of 2% of GDP to prevent real cuts in some departmental current budgets and to stop investment from falling as a share of national income. This is a much-needed shift away from the policy failures of previous Conservative administrations.
The budget allocates nearly £14bn to compensation schemes, with the majority rightly directed to victims of the contaminated blood scandal, alongside £23bn for departmental spending this year. Yet Ms Reeves’ announcement was not without caveats. With the NHS receiving the bulk of additional funds, certain departments – such as the Home Office and transport – will face real-terms reductions.
The increased health spending is likely to prove popular, especially if it reduces NHS waiting times to an 18-week maximum. However, the same desire to appease the majority of voters may have driven a counterproductive decision to freeze fuel duty for motorists, even as bus and rail passengers confront fare increases outpacing inflation.
The chancellor is instinctively cautious, taking positions strategically for political gain. She knows that taking a stand often alienates sections of the electorate. Critics argue that her approach breaks promises to protect working people from tax hikes, citing the Office for Budget Responsibility’s forecast of slowed growth and rising inflation. However, the OBR’s track record is far from perfect.
Loosening the fiscal constraints she previously imposed on herself was a prudent step for the chancellor. The pro-government tilt of her fiscal rules ensures that state spending remains 5% of GDP above pre-pandemic levels, strengthening the potential for a more proactive state. Investment-fuelled growth may take longer than expected to materialise. Ideally, progress should be measured not only by government benchmarks but also by broader notions of social welfare and wellbeing.
In a pivotal speech by a Labour chancellor, it was striking that “poverty” was mentioned only once, despite Britain’s significant levels of deprivation. The Resolution Foundation and the Joseph Rowntree Foundation (JRF) both noted that the budget missed an opportunity to alleviate hardship for many in need. While wage increases for millions of workers are welcome, FTSE executives have seen their pay soar to record levels, with median remuneration now at £4.19m a year.
The ongoing tension between labour and capital is only beginning. By October 2029, the JRF says families will be £770 poorer in real terms, with 100,000 more children in poverty. Without further strong steps to curb inequality, such as wealth taxes, this will be politically untenable. Ms Reeves has little option but to shift toward a more welfare-driven, redistributive agenda in the spring spending review. While the 1970s set the stage for the triumph of globalised market liberalism, Ms Reeves’ budget charts a course for a distinctly different future.
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