Budget 2024: A hard to judge ‘retro’ budget

Paul Sinclair, Senior Counsel
1/11/2024

The long wait for its first budget meant, for some, the new Labour Government hit the ground running on the spot rather than sprinting ahead in its first hundred days.

It took sixteen long weeks for Chancellor Rachel Reeves to deliver her first fiscal event. It was certainly historic on many levels, but the nature of it means it will take to the end of this Parliament at least before we can judge if it has achieved what she wished, after such a long gestation period.

If growth was the number one ambition of the new administration, the Office for Budget Responsibility (OBR) figures suggest that ambition was stunted. A peak of just two percent in this Parliament before it falls is an upward tick, not seismic change.

Growth was a key part of the election campaign, as was the pledge not to raise taxes on ‘working people’, which every independent expert has concluded has now been broken.

Borrowing rules have been changed to release £50 billion to spend on infrastructure projects, which the OBR estimates will have a positive effect on growth, but one that will take at least a decade to measure.

A long time in the making, this budget for the long term will take a long time to judge.

What people and business will feel quickly is the tax rises from the biggest revenue raising budget of modern times.

Businesses alone were hit with a £25 billion hike in employers’ national insurance contribution, which is widely regarded as a punitive ‘tax on jobs’.

Keir Starmer’s government already had a problem with its narrative and this is another example.

If growth is the number one priority, how does that square with this tax rise and proposals to give new employees new rights which are more onerous on their employers?

If consistency is the hobgoblin of small minds, as Emerson argued, the copious minds of this government seem free of any such spirits.

A few short weeks ago, the Prime Minister told us there would be no more money for the NHS without reform. Health Secretary Wes Streeting compared giving the NHS more cash to an airline buying more planes when it didn’t have enough pilots to fly them.

The plan for reform has not been written yet and isn’t due to be published until next year, but the decision was made to give the NHS £22 billion to spend on the frontline and £3 billion in capital spending.

No cash without reform last month. Plenty of cash before any reform in this one.

The NHS is, of course, a national treasure. The announcement of more investment feels good in October 2024. The question is whether the public will feel the benefit of it next October, or the next, or the next, or at any point before the next election.

Streeting wants to cut a bold, candid figure by saying the NHS is ‘broken’. The wonder is if he will ever see the day as a minister when he can say the health service is ‘fixed’.

Starmer and his ministers are keen to say it will take them ten years to repair the NHS and indeed the economy and public services.

With their majority, it might seem fair for them to plan for two terms, and thus their first budget looks to the longer term beyond even the horizon of the next election.

But it was a landslide on just 34 per cent of the vote, and the electorate seems more volatile than it has been since before the war.

While the majority might have been smaller, let’s remember that just five short years ago Boris Johnson was talking of two, perhaps three terms, and that seemed credible then.

One promise which Chancellor Reeves certainly did keep was that there was no ‘return to austerity’.

Instead, it looks more like a return to the Labour agenda of ‘tax and spend’ from the 1970s, although even then Chancellor Denis Healey declared himself a ‘monetarist’, something Reeves won’t be accused of.

Higher taxes for higher public spending now. But for this to be maintained, and cuts avoided in future years, taxes may have to keep on rising.

There will be an inflationary effect, and with employers asked to absorb tax rises there will be the need for pay restraint. Bring back flairs, lava lamps and the Ford Capri and the return to the 70s will be complete.

Back then, what the Chancellor did with the price of beer was a headline of a budget.

Rachel Reeves cut a penny off a pint. But in 1974 a pint of beer on average cost 30 pence – now it is £4.80.

Times have changes. And it will take time before we can really judge if this retro budget is right for today’s times.

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(Image credit: HM Treasury)