Rachel Reeves has brought what the leftish New Statesman describes as an ‘iron grip’ to Labour’s spending plans.
One doesn’t have to be a fellow at the Institute for Fiscal Studies, the trusted think-tank on the public finances, to recognise that with the national debt at or close to 100 per cent of national output (depending on how it is measured), and with NHS and welfare bills piling up, the cupboard is bare.
That is almost certainly why Ed Miliband’s wide-eyed ambition of a capital budget spend of £28billion a year on greening the economy, a plan even more ambitious than Joe Biden’s, has been radically scaled back. Every penny being promised on new exciting outlays is being carefully costed.
In fact without a step change upwards in one of the big contributors to the national coffers, income tax or VAT (a hefty corporation tax rise already is in the bag), much of Labour’s ambition will be stymied.
Several of the current tax raising plans such as the end of the non-domiciled tax status, closing the North Sea oil tax loopholes and removing charitable status from independent schools, could be costly to the Exchequer over the longer haul.
Insight: Shadow Chancellor Rachel Reeves is a former Bank of England economist
In the midst of the current cost of living crisis Labour, apart from complaining it is all the Tories’ fault and demanding more handouts, has been relatively silent. Labour has difficulty if it tries to weaponise inflation. Trade union militancy on the railways, in education, the NHS and elsewhere is a factor in driving the inflation psychology contributing to higher prices.
Putting aside carefully-calibrated settlements, designed by the independent pay review boards, should be no more acceptable than ignoring the Office for Budget Responsibility – for any political party.
Then there is the vexed question of the Bank of England. The independent Bank was one of the lasting creations of New Labour. The Nigel Lawson Tories never had the conviction to implement plans for an independent Bank, in spite of a sensible belief in sound money.
Then there is Reeves herself. As a former Bank of England economist she was for a time responsible for helping to compile the data and commentary for the international section of the Monetary Policy Report.
She has unusual insight into the way the report is compiled and the composition of the Monetary Policy Committee (MPC). Labour sources suggest she has questions around the diversity of views among those who set interest rates as well as an over-reliance on models and data. Even governor Andrew Bailey accepts the system is faulty.
One way of drawing the dots for Labour, while leaving the Bank’s mandate to target inflation at 2 per cent intact, would be to find ways of tying in Gordon Brown’s plans for a House of Lords of the devolved governments and regions with the MPC.
Brilliant regional economists, thinkers and industrial visionaries could end the dominance of Treasury and City group think. Five decades ago my undergraduate dissertation focused on shifting more economic power to the regions.
In the end we have to be confident that Bailey will overcome inflation. A lack of focus at the Bank on the core mission, slowness to act and a lack of outside voices has cost the nation dearly.
The next government, whatever its political flavour, should implement radical change.
