Where are the grown-ups in the room? Ahead of this autumn’s Budget, Downing Street and the Treasury have loaded up with economic expertise.
Former Resolution Foundation thinker Torsten Bell, an advocate of an income tax rise, was added to the Treasury.
Number 10 drafted in Minouche Shafik, a former Bank of England deputy governor. And a new post of Chief Secretary to the Prime Minister was created for Treasury spending overlord Darren Jones.
Instead of steadying the ship for Sir Keir Starmer and Rachel Reeves, they have wrought political chaos and market mayhem not seen since Truss in 2022.
In the manner of the Grand Old Duke of York, the Chancellor marched the Government, City analysts and voters to the top of the hill with the notion of a manifesto-busting income tax cut.
Yet with just ten days to go before the Budget, the Chancellor has marched everyone down again.
Out of her depth: Rachel Reeves’ experiment in trailing every conceivable tax change over several months has been disastrous
Any credibility Reeves may have gained in the financial markets for what was seen as a ‘clean’ approach to dealing with the fiscal black hole has rapidly been dissipated.
Instead, she has managed to send shudders through bond markets, foreign exchanges and equities all at the same time.
Normally in times of tumult, the Civil Service – what used to be regarded as Britain’s Rolls-Royce – would be there as a backstop to prevent ministers from making foolish, misjudged decisions.
As Permanent Secretary, Nick Macpherson was a sensible voice who guided the UK through the great financial crisis. Tom Scholar, foolishly sacked by Liz Truss, was a steadying hand in the rescue of Northern Rock and the banking system.
If there had been a moment for the current Permanent Secretary James Bowler to step up, it would be now.
The experiment in trialling every conceivable tax change over several months has been disastrous.
It has undermined business and consumer confidence and destabilised pension saving.
As a principle, skewing the tax system in favour of retirement income makes a huge amount of sense. An ageing population is less likely to fall back on the State.
Funds accumulated can be plugged into faster-expanding innovative sectors of the economy. They should not be a punch bag for the Treasury.
Indeed, it is hugely unfair to working people in the private sector to mess with their pensions, when public sector employees enjoy largely unfunded, gold-plated defined benefit schemes.
The latest spin is that the Chancellor can retreat on an income tax rate rise because the Office for Budget Responsibility discovered £10bIllion in the bottom drawer. That is helpful, but it shouldn’t detract from the reality that the income tax rise was political poison for Labour.
Instead, it looks likely to be replaced with backdoor, less transparent rises in the income tax burden.
This could be done by making allowances less generous and freezing thresholds for a couple more years. The return of a smorgasbord of taxes, with banks and mansions back in the firing line, has reversed the recent lowering of bond yields.
Uncertainty is the great enemy of markets and is back in spades. Reeves has made a virtue of refusing to allow capital spending cuts to take the strain.
But the growth dividend from such spending is years away. Political cowardice has taken meaningful welfare reform off the table.
Reeves’ income tax U-turn reinforces the view that the Chancellor is deeply out of her depth.
It would be a smoother ride on volatile markets if Reeves and supposedly wiser heads around her kept schtum.
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