It is absolutely the case that this Labour Government has inherited a fiscal nightmare from the Tories. No exaggeration, no spin – just the plain facts.
There is a £22billion black hole in our finances. Hotel asylum costs, to take one example, are about 50 times more in year than the Home Office budgeted for. The recommendation from the pay review Body for the teachers’ pay award of 5.5 per cent, sat on the Tory Education Secretary’s desk, whilst no provision was made for funding. These are real costs, which Labour is having to tackle.
Beyond this, the Tory future spending plans of just one per cent increases, meant that non-protected areas faced savage cuts on top of austerity.
Huge cuts to transport, social care, local government, further education and more. This must be tackled. The Tories were running a scorched earth strategy of leaving fiscal time bombs for Labour to wrestle with.
And the Tories committed to huge spending pledges, for which funds were simply not provided. Witness the hospital building program and the commitment to spend 2.5 per cent of GDP on defence. Fiscal dishonesty on a massive scale.
And people voted for change on July the 4th. An end to austerity and more investment for public services.
This is the challenge that Labour in Government is grappling with as Rachel Reeves prepares her Budget.
But be in no doubt, to tackle the Tory legacy, stabilise our finances, and increase investment in public services, there will need to be tax increases and some spending restraint. In total about £40billion is needed.
How will the Government deliver this?
Well, they won’t levy tax rises on hard-working people. No increases in income tax, National Insurance on working people or VAT. Just as Labour promised.
But the wealthy will be asked to pay more. A clear majority accept the need for that. Its fair and reasonable. And the scare stories about huge numbers of wealthy people leaving the country are widely exaggerated to try to put the Government off doing what is right. Most wealthy people are invested in Britain and won’t be put off by marginal increases in tax.
So, there may be increases in capital gains tax – it is crazy that gains from asset sales are taxed much less than earned income. And probably removal of allowances which allow the extremely wealthy (with £5million plus to pass on) to pay less inheritance tax than people with assets of £1million or less. Most reasonable people will see these changes as fair.
There may well also be a sensible, justifiable change to the way debt is classified within the fiscal rules, to allow some £50 billion extra capital investment in hospitals, council housing, and transport. Economists of left and right agree these changes-prioritising investment-can be made without spooking the markets.
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All of which can create the conditions for economic growth, which can lead to more investment and the cutting of personal taxes later in this parliament.
And the rationale and purpose of these budget changes must be relentlessly communicated by the Government.
In Government, you need to explain every day what you are doing, why and how. Bluntly, the Government hasn’t been good at that. With the Budget and a new communications team in Downing Street, that must and can change.
This really can be a Budget to fix the foundations to deliver change.
And when the Tories criticise, they need harsh criticism for leaving this fiscal nightmare to be tackled.
More importantly, they need to be challenged on where they would cut the extra investment in the NHS, and other public services this Budget will deliver.