The Insider

What Jeremy Hunt’s budget means for Labour

If Keir Starmer is committed to retaining the Tories’ tax cuts, improving public services will be even more of a headache

March 06, 2024
Image: Joshua Bratt / Alamy
Image: Joshua Bratt / Alamy

No one serious believes that another 1p or 2p off income tax or National Insurance is likely to make a big difference to the outcome of the election. But it will make a huge difference to the post-election reckoning on the beleaguered public services.

There is an underlying rationality to this which is greater than you might think. The sums of money involved in these tax cuts—a 2p National Insurance reduction would cost about £9bn a year, and a 2p income tax cut about £13bn—are large in terms of spending on public services, particularly coming on top of the 2p NI cut in last November’s autumn statement. But both tax cuts together are small by comparison with the tax rises and squeeze in living standards that have hit the voters in this lamentable parliament.

To take just income tax and National Insurance, the Institute for Fiscal Studies notes in its budget briefing: “We are in the midst of a much bigger tax rise as tax allowances and thresholds are set to be frozen all the way from 2021–22 through to 2027–28. That is a tax increase of over £40 billion by 2027–28 (the last year of the planned freezes).” So even on income tax and National Insurance, Rishi Sunak and Jeremy Hunt are taking away more than they are giving. And that’s before you get to council tax, stamp duty, and far higher energy bills, rents and public transport fares. The voters aren’t stupid.

This tax debate is lethal for the Tories because they have virtually no public service improvements of which to boast, so it is lose-lose. More tax for worse services. NHS waiting lists are still escalating through the roof, which is the single worst yardstick. According to the latest YouGov poll, 85 per cent of the public say that the NHS is in a bad state, with more than half saying “very bad state”. Across the piece, 79 per cent say public services in the UK are in a bad state, including 32 per cent who say they are in a “very bad” state.

Then there is the dire state of local government. Every week now brings more council bankruptcies. For a while these seemed like little local difficulties, but the scale of the catastrophe has become a national story with the collapse of Birmingham City Council, the largest local authority in the country. The emergency measures in Brum include the closure of nearly three-quarters of its libraries, an end to virtually all arts funding and big cutbacks in adult and child social care. How many more local authorities might go bust? No one is sure, but it could be hundreds unless there is significant extra income.

All of which is a nightmare for an incoming Labour government sure to be judged by its success in improving the public services yet committed to retaining the Sunak/Hunt’s tax cuts.

The budget’s projections for public spending involve deep real-terms cuts which would make it hard to maintain even the status quo, let alone sustained improvements. As for major increases in infrastructure investment and support for green industry, both essential to a growth strategy, that’s simply not going to be possible without new income sources going beyond Labour’s existing tax raising commitments on private school fees, non-doms and energy companies.

The bold strategy would be to raise taxes sharply in a first Labour budget, focusing especially on the large pools of practically untapped wealth of the rich in property and other assets. A major reform of council tax would be the place to start. So it will be important to note whether shadow chancellor Rachel Reeves rules this out in the run-up to local elections in May. For when it comes to Labour ruling out new taxes on wealth, silence is golden.