The Guardian’s view on Rachel Reeves’ speech: Gambling on the mirage of stability | Editorial

RAchille Reeves letter This was a pre-emptive admission that Labor would almost certainly breach its manifesto commitment not to include income tax in the November Budget. The credibility gap between Labour’s political theater and financial calculations has been clear for weeks. The economic fundamentals have not changed for the Chancellor, only politics have – particularly with the UK Reform and Conservative Party making the shift. Austerity Central politics are in their court.

Ms Reeves wants the argument coming forward to be that Labor is committed to protecting public services and jobs, while portraying her right-wing opponents as ideologically committed to shrinking the state. This isn’t a bad idea – if wealthy people fund it. If her promise had to be kept, she chose the politically optimal promise – even her shadow, Mill StrideAnd he admitted.

Chancellors do not usually give speeches before budgets, and if they do, they tend not to say anything. But Sir Keir Starmer needed a line to get away awkwardly Questions From the Conservative Leader, Kemi Badenoch, and Ms Reeves introduced it. It has also provided cover for the leadership’s ideologically conservative fiscal policies, which are now being implemented in Parliament through a three-line whip on the two-child benefit cap during the election period. Discussion day opposition About luxury.

The ministers could have proposed a neutral government amendment that would talk about “keeping the two-child limit under review.” It would have automatically replaced the opposition Modificationsand avoid possible rebellion. But the government wanted to confront its critics. In the end, the Speaker of the House of Commons did not call ModificationsBut Ms Reeves took the opportunity to show the markets that she would not bow to her MPs. the fairy Stocks fell anyway, suggesting that traders weren’t paying attention.

This is a Pyrrhic victory. This year the government is likely to spend approx 6% of GDP More than it returns in taxes. About half of this amount goes to banks and pension funds Interest payments On bonds as well as through quantitative easing. This is weakness amount It is pumped into the real economy that voters see. The rest is for public investment, which brings long-term, not short-term, benefits.

This strategy carries a high risk of exploding in the face of the government. Reeves assumes that the private sector – whether households or companies – will take care of the shortfall. But the only sensible way to do this is through excessive borrowing, not productive expansion. Dangerous like this Unstable model It is that it produces conditions similar to the 2008 crash – but this time with households starting from a weaker position.

Many families are already high debtor And confront A Cost of living crisis. They are unlikely to spend money. Companies showed no sign of investment, preferring financial accumulation and Stock buybacks. Banks are hoarding, Not lending. If the government of a country that imports more than it exports insists on running a very small deficit, and the private sector is unwilling or unable to borrow and spend more than its income, recession – or even stagnation – becomes the inevitable result.

Ms. Reeves calls this stability. But it is a gamble – ostensibly based on households borrowing what the state will not spend, and on markets believing in confidence that never arrives. If New Labour’s tragedy is debt-fueled growth, then it is a farce to pretend that it can happen again.

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