Having been fairly critical of my (almost) friend Rachel Reeves’s approach to her first budget, I wish to put in a word of praise for certain aspects of it before, er, continuing to be critical.
The emphasis on devoting more resources to the NHS is long overdue. The new health secretary, Wes Streeting, does no good for the morale of doctors, nurses and patients when he goes on about the NHS being “broken”. In common with friends and family, I have recently had recourse to medical help, and we have been much impressed by what we have witnessed – not least by the good work of staff from overseas.
The problem has been that, under austerity, from 2010 onwards, the NHS was afflicted by a severe shortage of funds. The former chair of a leading London hospital trust says that in 2010, after the Blair-Brown concentration of extra resources for the NHS, his hospital had no waiting list. But, as a senior NHS official told me at the time, in order to stand still the NHS needed real (that is, after-inflation) increases of about 4% a year. The Cameron government claimed that they were paying special attention to the NHS, but between 2010 and 2019 the annual increase was less than 1.5%.
Another welcome aspect of the budget was the emphasis on investment, and easing the fiscal rules somewhat. However, this has not prevented a barrage of negative comment from thinktanks and certain sections of the press. And not without reason. By hoisting herself with her own petard – no increases in income tax, VAT or employee national insurance – the chancellor found herself resorting to some deeply unpopular taxes that have caused quite a furore, and whose revenue gains are far from certain.
In particular, the increases in employer national insurance contributions has proved an own goal, with few people believing that, as it works through to prices, this is not in effect also a tax on “working people”. Thus, having honoured a commitment not to raise the other taxes, Reeves is nevertheless open to the charge of breaking an election promise.
But my strongest criticism is of the omission, once again, of what Neil Kinnock calls “the mammoth in the broom cupboard” – Brexit, and the government’s continued obsession with its “red lines”, which rule out applying to re-enter the customs union and single market. Moreover, reports from Brussels suggest it is not obvious from there that the UK is making much headway with “resetting” our trading relationship.
Which brings us to the issue which is on so many lips: the prospect of the second Trump presidency, this time with precious few constitutional restraints. The previous UK government got nowhere with the fatuous idea that a special trading relationship with the US could make up for the damage caused by opting out of our EU trading privileges.
Because Trump’s observations about trade and tariffs are so wild and often inconsistent, it is difficult to know what this notoriously transactional man will settle on, but the omens do not look good.
It is almost laughable that our government, having sensibly feared the prospect of a Trump victory, is now trying to comfort itself by resorting to that old cliche: the “special relationship”. What Britain actually needs is the shelter of the EU, and, with their own burgeoning troubles, the EU countries need us.
One of Keir Starmer’s understandable obsessions is trying to overcome the criminal gangs that exploit would-be migrants to this country. But the prime minister reportedly said last week that Brexit had made cooperation on this issue with other countries difficult. Well, well, well.
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People are comparing the Trump vote to our own Brexit vote: the frustration or revenge of the “left behind” in reaction to globalisation and the supposed arrogance of the elite. In fact, many voters who were wooed in the UK by the Brexit crowd now realise they were conned, and the “left behind” Trump supporters are in for a nasty surprise when higher tariffs make their living costs even worse.
The famous motto “it’s the economy, stupid” was double-edged in the US this time. The macroeconomic figures looked reasonable, but even though the pace of inflation slowed down, the previous surge in US prices was not reversed and the cost of living seems to have been a major factor in the election.
But back to the UK. Reeves is constantly concerned by market reactions. Her budget was regarded as mildly inflationary, with an inevitable impact on the course of interest rates. But the UK is a small participant in world financial markets. With markets expecting Trump’s tax cuts and tariff policy also to be inflationary, there could be adverse consequences for US interest rates, and repercussions here.
