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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
You cannot fault the politics. As Rachel Reeves denounced the largely predicted but still shocking black hole at the heart of the UK’s finances, you had to respect the chancellor’s craft.
Nor could you fault the politics when the Conservatives spent £20bn they did not have cutting 4p from national insurance — except, you could fault it, because it made no difference to the election result. And you couldn’t fault Reeves and Sir Keir Starmer for pledging not to reverse the NI cut they knew the country couldn’t afford because they saw it as a Tory tax trap.
Given the voters’ proven distaste for tax rises, you also have to respect the calculation that led both major parties to pledge no increases in income tax, NI and VAT, even though they account for 63 per cent of revenue.
You cannot but marvel at the brutish political calls that saw Tory ministers leaving expensive decisions in their in-trays and maxing out the credit card, knowing someone else would face the bill. Every problem left to Labour makes it harder for them to succeed.
And while Reeves may have been shocked by the detail of the public finances, and her outrage at Tory mismanagement wholly justified, her performance was largely planned in advance. The broad fiscal picture was known before the election. This was all part of a political strategy to temper public expectations, affix blame to the Conservatives and instil patience in her own MPs. It is also likely that the tax rises she implied were unnecessary during the election, but will announce in October, have long been known to her.
So yes, those of us who fixate on the machinations of modern politics can appreciate a game well played.
And yet for all its artistry, Reeves’s statement also highlighted how politics fails and fails the country. For the money-saving measures she announced include scrapping the £1bn plan to cap individual adult social care costs. This is one of the UK’s longest-running policy sores. The sector is badly underfunded. Staff are poorly paid, a shortage of places leaves hospitals struggling to discharge patients and people are forced to sell their homes if they require residential care for illnesses such as dementia.
She is at least following in a long tradition. A timeline of prevarication goes back to 1997 when Tony Blair declared: “I don’t want [our children] brought up in a country where the only way pensioners can get long-term care is by selling their home”. A royal commission declared that “doing nothing is not an option”, only it turned out that it was.
From then until 2010, a raft of Labour reviews and measures were ditched or diluted on cost grounds. Talks between the two main parties collapsed when the Tories saw the chance to build an election attack line over what they called a death tax. In office they brought forth the Dilnot plan for a lifetime cap on care costs. A version of this idea has been revived and delayed ever since.
As prime minister, Boris Johnson introduced a levy to cover the costs. Liz Truss scrapped it as part of her tax-cutting agenda. Reform was then delayed again until after the 2024 election. Party politics and short-term funding concerns have led to 27 years of failure.
With other pressing priorities such as committing billions to settle or avert public sector pay disputes, Reeves decided more delay carried little political cost. You can’t fault the politics. Labour promises instead a broader national care strategy. We’ll see. But the smart expedient of parking long-term problems is often the parent of later crises. Consider the decade wasted not building new nuclear power stations.
It would be absurd to judge Reeves too harshly on this one call. The mess she inherits is real. And her other cuts, such as restricting the boomer bung of winter fuel payments to only the poorest pensioners, were well targeted.
She also still has plenty of tax options — raising capital gains tax, cutting the relief on pension savings, tweaking inheritance tax or raising the cap on NI contributions for higher earners. The danger is that having denied herself the obvious tax levers, some of these ideas — and promised changes to non-dom tax rules — undermine the UK’s appeal to investors. This is the potential price of the faultless political call not to reverse the NI cuts. In the short term, it was smarter to roll with the Tory tax punch.
Reeves would argue that hers is a true long-term approach that delays unaffordable commitments until the finances are in good order. Her plans rely on securing higher growth and public service reform. She may be lucky and in Wes Streeting at health and Liz Kendall at work and pensions, Labour has two committed reformers to tackle the burgeoning costs of the NHS and welfare. Yet it is too early to count those chickens. GPs have already threatened strike action over funding.
The cycle of short-term decision making is hard to break without money. The worry is that even with some hefty tax increases, unless the public finances improve quickly, Labour will find it has too many urgent spending demands to move beyond firefighting.
With luck, Reeves will get her economic tailwind. But even the sharpest political tacticians cannot indefinitely outrun economics. We should not damn a new administration over one dismal decision, but it was a troubling portent. If growth and reform fall short of Labour’s ambitions, this week’s spurt of short-termism will be only the first. But still, you can’t fault the politics.