Today, the return of tax and spend.Labour's first budget in 14 years.
Hello, it's Grace Dent here from The Guardian's Comfort Eating podcast.This week, I sat down with actor Richard E. Grant and we talked about love, baked beans and what it was like to work with the Spice Girls at the height of their fame.
Scary pinched my bum and she said, you're not bad for an old bloke.And I thought that was a great compliment.
That's Comfort Eating.Listen wherever you get your podcasts. I call the Chancellor of the Exchequer.
Yesterday, in the House of Commons, Rachel Reeves finally delivered her very long-awaited budget.
Thank you, Madam Deputy Speaker.On July the 4th, the country voted for change.
She was the first woman ever to stand at the dispatch box and outline a government's spending plans.
For girls and young women everywhere, I say, let there be no ceiling on your ambition, your hopes and your dreams.
You wouldn't have necessarily known it from her calm, serious voice, but this was a seriously radical budget, promising a £70bn increase in annual spending to rebuild Britain.
In 1997, it was the Labour Party that rebuilt our schools and hospitals. Today it falls to this Labour party, to this Labour government, to rebuild Britain once again.
Reeves promised that working people will not feel the pain, but instead will see real improvement in public services, particularly the NHS and schools.
More pounds in people's pockets.An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all.
Her spending bonanza will be funded by massively increased borrowing, as well as tax hikes for businesses and the rich. With such a bold budget comes big risks.From The Guardian, I'm Helen Pidd.
Today in Focus, will Rachel Reeve's spending spree pay off? Heather Stewart, you are Special Correspondent at The Guardian and a former political editor, of course, so you are a veteran of these events.
And before we get into the nitty gritty and the detail, what is your immediate reaction?What did it feel like to you?
Feels like a big budget to me.It feels like a really historic moment.I've covered a lot of budgets going back sort of 20 years and more, and it's huge in terms of the increase in taxes and spending and borrowing.
It's a kind of old fashioned tax and spend budget in a way.
One of the complaints over years from, probably from the Guardian, but certainly from Labour, one of the big complaints against the Conservatives is it was about public spending, right, about austerity, about starving the public realm of resources.
And one of the big issues during the election campaign and in the years running up to that was a really terrible state of public services, which we've all experienced.
And I think Labour's manifesto, the big title on the front was change, which is quite ambiguous.But I think one of the big things people were probably expecting them to change was the state of the public services.
And this is Rachel Reeves's attempt to try and do that.
And could you give us the big picture of what Rachel Reeves was setting out in this budget?
Yeah, so she is increasing taxes by a lot, 40 billion quid a year.And she's also raising borrowing significantly by around 30 billion pounds a year, which means that she can spend a lot more money.
So the Office for Budget Responsibility, which gets the job of checking all the figures, says that the policies altogether increase spending by almost 70 billion pounds a year.So that's 2% of GDP.So it's really big.
And it says two thirds of that is on day to day. spending and one third is the sort of longer term investment.
So it's a really concerted attempt to, you know, sort of turn the tanker around, I suppose, and try and make a difference to the state of the public services.
But the country has inherited not just broken public finances, but broken public services too.The British people can see and they can feel that in their everyday lives. NHS waiting lists at record levels.
Children in porter cabins as school roofs crumble.Trains that do not arrive.Drivers filled with polluted waste.Prisons overflowing.Crimes which are not investigated and criminals who are not punished.
And some people hearing about this massive spending spree might think, hang on a minute, all summer we've heard Rachel Reeves banging on about this £22 billion black hole and she's taken that black hole of spending that she needed to find, then she's added an extra £48 billion.
How does she square that circle?
partly by taxing people a bit more.And then there's also this different measure of debt.
So, and this has been well-trailed, and I suspect well-trailed because they were worried about the potential market reaction, but she has this fiscal rule that she wants debt to be falling within five years.
But she said, oh, okay, let's use a different definition of debt, which actually a lot of economists have argued for quite a while is a sensible thing to do.
she's going to use this new definition which is public sector net financial liabilities per snuffle, they call it, for the treasury. but snuffle.So it just allows her to loosen the purse strings a bit.
And it doesn't so far at least seem to have particularly spooked financial markets.You haven't seen a sort of Liz Trust style spike in bond yields.But that's one of the reasons she's allowing herself to borrow more.
And lots of people on the left have been whinging that Keir Starmer and Rachel Reeves are just not radical people, a bit stodgy.They've been playing it too safe.But did this feel like a radical budget to you? I think it was radical in its scale, yes.
I mean, what's interesting is that the language is not terribly radical.
Rachel Reeves is not someone who, she's not a rabble rouser, she's not a kind of soak the rich lefty, but if you look at the areas where she's raised money, a lot of them, it's capital gains, there are changes to inheritance tax,
So she's going to make it harder to pass on farmland tax-free, which is partly meant to help farmers pass on it, obviously.But also, there's an argument there's quite a lot of people, just rich people, buying up farmland and hanging on to it.
Let me update the House on our plans for air passenger duty.And I can see the right honourable gentleman's ears have pricked up.
She's also increasing the passenger duty for private jets, which is partly just a way of making an incredibly laboured joke at the expense of Rishi Sunak, who's of course a famous fan of private jet use.
But I am taking a different approach when it comes to private jets. increasing the rate of air passenger duty by a further 50%.That is equivalent to £450 per passenger for a private jet to, say, California.
So if John McDonnell had delivered this budget, Jeremy Corbyn's shadow chancellor, you would have heard quite a lot about, you know, their phrase was for the many, not the few, wasn't it?
And I think you'd have heard more language about the rich paying the majority of this or bearing the burden or whatever.And the language wasn't there, but most of the impact tax wise is falling on the upper end of the income scale.
Yeah, you could pitch this, I suppose, as some kind of class war budget with her taxing the rich, but most of the money that she's raising is actually coming from businesses, isn't it?
The biggest tax rise is this increase in employers' national insurance contributions, so that's what
the company that employs you pays as a percentage of your salary each year and they're increasing the rate by 1.2 percentage points to 15% and they're also reducing the threshold at which your employer starts to pay it from £9,100 to £5,000.
So that is a big tax increase on employers, on companies effectively. Now, there is a question about who really pays for the employer nix increase.So small companies will say, my goodness, that's making it more expensive for me to employ people.
I might employ fewer people.I might not pay them as well as I might otherwise have done.And so eventually then the cost or some of the cost at least does get passed on to working people, in inverted commas, which was this mythical group.
But it's indirect rather than direct.
Right, and there was some mitigation in there, wasn't there, for small companies that changes to allowances, I think, which means that, at least according to Labour, 865,000 employers will actually pay no national insurance next year.
Plus, they're lowering business rates for some industries that have got a lot of lower paid workers, so retail, hospitality and leisure. And you've already mentioned working people.Do you think it's clear now what Labour means by working people?
And is this budget going to help the people who are struggling the most?
I think they tied themselves in terrible knots over the definition of working people.And if they'd just said early on, look, we're going to have to put taxes up, you know, things would have been a lot easier.
And it's been quite a painful, you know, I think at some point over the weekend, Keir Starmer said, you know, working people, they know who they are.I mean, it just It got kind of ridiculous.
And it was all to do with the precise wording of their manifesto pledge.But I think we can, you know, part of the definition is about earned income versus unearned income, right?And capital gains tax and inheritance. tax are paid on unearned income.
And that's a different category.It's that, I think, rather than there's some particular individual over there who's not a working person, who Rachel Reeves wants to attack.
I mean, I think one of Labour's promises in its manifesto was about making the living wage into a sort of genuine living wage, so that the statutory minimum, that they wanted to boost that, partly because we've seen strong inflation over the past
year or so, and we are seeing chunky increases in the minimum wage.So it's going up by 6.7% for over 21 year olds.And there's a much bigger increase, 16.3% for those younger workers, for the 18 to 20 year olds.
I mean, I think that will be one of the things that businesses will complain about.But that makes a significant difference for low paid workers.
And it's another reason why, you know, although they may not sound terribly radical or lefty a lot of the time,
you know, those are the working people that Rachel Reeves is talking about protecting and, you know, wants to sort of make their lives better.
And so how are they planning on spending all of this money?
So Rachel Weaves highlighted, in fact she spent a very long time enumerating the various things she wants to spend the money on.
She talked about a whole series of transport projects, I think probably projects they hope are, the phrase economists use is shovel ready, so things that are already planned out that they can sort of crack on with.
So there's a lot of transport infrastructure
We will deliver East West Rail to drive growth between Oxford, Milton Keynes and Cambridge, with the first services running between Oxford, Bletchley and Milton Keynes next year.And the NHS.
Yeah, that was the biggie, wasn't it?Yes.She's pledged an extra £22bn for the NHS, which is a really chunky settlement.And I think that's an acknowledgement of the fact that it's the public service that's in the worst state, which I think most of us
who've had any dealings with it in recent years would confirm.And so she talked about meeting Labour's target of reducing waiting times to 18 weeks.
And she also talked about increasing the number of diagnostic appointments, increasing GP appointments.
In the spring, we will publish a 10-year plan for the NHS to deliver a shift from hospital to community, from analogue to digital, and from sickness to prevention. Today we are announcing a down payment on that plan.
So we've got £22 billion for the NHS, significant funding for transport, including finishing HS2 at least to London, if not all the way to the north.What else?Education seemed to be quite a big beneficiary.
That was also a big ones.So she talked about both capital spending to help schools that have leaky roofs and all of that.She also talked about an increase in day-to-day spending.
So there's a billion pounds for special educational needs, for example, which is a part of the system that's really in crisis.
and also money to allow extra teachers to be hired, which was a manifesto promise, which is partly funded by the increase in VAT on private school fees, which is coming in as planned in January.
There's been an awful lot of lobbying about that, but she had no hesitation in going ahead with that. And what about housing?Yes, housing was another big one.So Rachel Reeves is making available an extra five billion pounds.
And she talked about affordable homes.And she also talked about reducing the right to buy council house discount to allow local authorities to hang on, hopefully, to more of the council homes that they build.
So she even talked about specific housing projects, you know, so one in the Liverpool docks area where the government's going to help with remediation of potential areas for new buildings.
So this is another area where this government has talked a lot about, you know, I've seen conference speeches where Keir Starmer said, you know, we're the builders, not the blockers.You know, this is something they really want to be measured by.
And again, I think they're looking for schemes that are kind of good to go so that they're things that voters will be able to see starting to go up on their doorsteps before the next election.
And arguably the part of government that suffered the most from the Tory austerity years was local government.Was there much in there for councils and metro mayors?
Yeah, she talked about the fact that local authorities have been deprived of funding for years under the previous government and she said there'd be a 3.2% increase in funding for local authorities. including an extra £600 million for social care.
I mean, as an aside, I think you would say social care is an area that has been somewhat neglected in debate since the government came to power.
They don't seem to have offered any kind of solution on how to fund it, although they are starting negotiations for a better sort of
pay and conditions settlement for the workers in that sector but the question of how to fund social care is still unanswered but there's a 600 million pound sort of sticking plaster that she talked about as part of that local government settlement.
So some welcome funds for local government whether it'll stop them all going bust which is the constant fear isn't it is another question I suppose.
Indeed, and she also talked about more devolution settlements that she wants to do and confirmed that, for example, Greater Manchester and the West Midlands are now going to get much more freedom over how they spend the money that they get.
Andy Burnham will be very pleased that he's going to be trusted with his own budget rather than being told how he has to spend the money that the government gives him.
And in terms of what was missing from this budget, what was conspicuous in its absence, do you think?
So one thing, there was a couple of tax rises that had been sort of heavily trailed or speculated about and didn't happen.I mean, I think also absent were some things that we might have liked to hear more about.
So child poverty, for example, the hugely controversial two child limits is not going, even though most charities say that's the first thing you would do if you were going to try and tackle child poverty.There were some other measures.
for example, on the rate at which universal credit is clawed back if you owe the DWP some money, which the government says that'll allow people to keep more money in their pockets and will help.But there wasn't very much for welfare claimants.
And in fact, there was a bit of a chat about a welfare clampdown.So we're going to have more anti-fraud measures, the DWP will be able to look straight into your bank account.
in an attempt to sort of try and claw back money they say is being fraudulently claimed.So yeah, that wasn't quite scrounger's language, but it was tough language on those sorts of benefit areas.
We should highlight though, a victory for our colleagues, Josh Halliday and Patrick Butler, who's done some really brilliant reporting on the carer's allowance and the fact that people were unwittingly
being overpaid carers allowance because there are very strict rules about how much you can earn before you're not allowed to claim it anymore.
People were not understanding the system or sort of, you know, working a little bit extra one week and then, you know, having that money sort of clawed back and suddenly being told they owed thousands or tens of thousands of pounds.
So we've had some great reporting on this.Rachel Reeves said she was really concerned about it.She's going to allow people to work a bit more before it's claimed back and she's also looking at the the way that people have been treated too.
So that was a real triumph for some colleagues.That was really nice to see because some of those stories have been absolutely heartbreaking.
Coming up, after months of doom and gloom, are there finally reasons to be cheerful? Heather, I'm curious about how you think Labour have handled the framing and the build up to this moment.They've been so serious and so gloomy for months.
Have they played a blind edge, you think?
So I think they spent the first couple of months in power really not preparing as well for this moment.So they were very, very keen to hammer home the message that the Tories had screwed everything up.
I think most of us could look out the window at the state of public services and agree with that, but Rachel Reeves had this very theatrical moment before the summer where she talked about spending that Jeremy Hunt had not accounted for properly, this black hole.
Yeah, when he was Tory Chancellor.When he was Tory Chancellor.So she says, I've got this huge, great black hole.I'm going to have to do some terrible things, everyone.It's going to be terrible.It's going to be terrible.
And she took the winter fuel allowance away from the majority of pensioners, which was an extremely unpopular move. there are arguments you can make for that.And I think they also wanted to hammer home the message that it was the Tories' fault.
George Osborne did that extremely well in 2010, if you remember, where he talked about the global financial crisis.He laid it at the door of Gordon Brown.I think Labour think that worked terribly well.
We need to really hammer that home before we move on to the next bit.And really, I think probably what people wanted to hear was more of what they heard today, which was, we can sort your school out and we can hopefully turn the NHS around.
A better Britain is possible.Yes, exactly.It doesn't have to be like this.
I think at least they've now got much more of a story to tell and they will hopefully have some things they can point out to say, you know, this is what we're going to build, this is how we're going to change things, this is how things can be better.
And did it feel like we were watching a historic moment?
I think it's a real turnaround moment.I think, you know, 97 was a big change in policy.2010 was a huge change in fiscal policy when austerity came in.And I think she wants really to draw a line under that.
And you look at the scale of what she's doing, you know, we don't know whether it's going to work or not.You know, there's always the risk that it's not enough.And immediately you'll see, I would imagine,
people in the NHS or schools or whatever saying, thank you very much, but still not enough.So it's certainly not going to fix things overnight.
But the other thing that we haven't talked about is the way that people will judge the impact of a budget and the impact of the government's management of the economy.
It's also whether they feel richer or poorer overall in five years' time, which is not necessarily just whether they're paying more or less out of their pay packets.It's also the general state of the economy.
And there were some worrying signs there, I think.If you look at what the OBR is projecting for the economy for the next five years, it's pretty weak growth.
You'll remember Labour had this manifesto promise of we're going to be the strongest growing economy in the G7. not judging by these growth forecasts unless the rest of the G7 is having a bit of a mare.
I would say that growth doesn't look particularly strong.
In the next five years.So it's a long-term budget, is it, do you think?It's a budget that's hoping in 10 years time?
Yeah, I think she hopes that the investment starts to yield results.Yeah, I mean, she may well hope that it will start giving results sooner, the OBR tends to be quite cautious about what it's willing to say.
And it's also pointed out, the OBR, it's expecting inflation to be slightly higher as a result of the fact the government's spending a bit more.So it expects inflation to be about half a percent higher than it might otherwise have been.
And it's only expecting real household income to go up by about half a percent a year over the next five years.So that's a measure of living standards, basically.It's your income adjusted for inflation.
So we're not going to feel wealthier.
Exactly.If these OBR forecasts are correct, Rachel Reeves will be hoping growth comes in much stronger, which is governed by lots of things that are not in her control, right?So not just her policies, but lots of other things.
She will be hoping there's an upbeat mood, lots more investment comes in, people spend more, and the growth forecasts are revised up.
But if the OBR is right, we are not going to feel very much wealthier, if at all, in five years time than we did when Labour came to power.
and I think Labour's gamble is that's true but you can get a GP's appointment and you know the ceiling's not leaking in your kid's school and you know everything around you looks a bit less grotty and you know your journey to work's got shorter and maybe that's
you know, help some companies invest.And, you know, so it certainly doesn't look as if what we're looking at is some kind of boom, you know, she's not unleashing some kind of growth miracle or certainly not if the OBR is correct.
But what she is trying to do is fix the absolute state of the public services.Heather, thank you very much.Thanks, Helen.
And that's it for today.My thanks to Heather Stewart.You can read all of our analysis of the budget at theguardian.com.Before we go, I just wanted to tell you about a new newsletter that The Guardian has just launched.It's called The Long Wave.
It's written by Guardian columnist Nazreen Malik and Jason Okundaya, who's also the editor of the newsletter.
The Long Wave will explore the interconnectedness of Black people around the world through arts, culture, politics, business, health and much more.You can sign up for free right now at theguardian.com forward slash thelongwave.
This episode was produced by Eli Block, Alex Atak and Nadia Syed and was presented by me, Helen Pidd.Sound design was by Rudy Zagadlo and the executive producer was Elizabeth Kassin.We'll be back tomorrow.
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