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Let’s forget for a moment Rachel Reeves’s clumsy accusations of a Tory spending cover-up.
The real truth is that almost half of the Chancellor’s £22bn black hole in the public finances is a result of her own decision to appease unions and junior doctors in particular.
Reeves has pledged that there will be no more fiscal events or mini-budgets without buy-in from the independent Office for Budget Responsibility.
Yet his review of public finances, privately organised by the Treasury and spanning all government departments, is precisely that.
Liz Truss’s unaudited tax concessions focused on giving tax breaks to hard-working Britons, and markets ignored them with indifference.
Fuel raid: The Chancellor (pictured) is imposing a penalty on all but the most well-off pensioners
Paradoxically, Reeves’ gifts were targeted at unions and had no immediate adverse effects on the UK government bond market.
However, there is no such thing as a money tree.
The decision to accept the recommendations of independent pay review bodies, without productivity returns, sets a dangerous precedent.
If private sector employers were to do the same, it would be damaging to profits, returns and output at a time when AI offers all kinds of possibilities to repair the UK’s productivity deficit.
The government’s decision to generously fund public sector wages has long-term fiscal consequences. Public employees are largely the only ones receiving pensions corresponding to final or average wages.
By raising wages excessively, the Chancellor is creating a problem for her successors, as public sector pensions are unfunded and come directly from the pockets of private sector taxpayers.
Taking the first steps to close a black hole, the Chancellor is imposing a fine on all but the most well-off pensioners.
Many people on state pensions consider winter fuel payments to be money to spend. They are a small minority.
At a time when energy bills remain high, as a result of the radical change in the conflict in Ukraine, now is not the time to allow Britain’s middle-income elderly to shiver in their homes through the coming winter.
Access to pension credits is notoriously difficult, which is why Labour’s previous Pensions Commission preferred to improve basic state pensions rather than means-testing.
We should not think that this is the end of the assault on pensions. When the Chancellor presents her first full budget on 30 October – if she follows the Treasury’s fiscal advice – the tax relief on private pension savings will be reduced. If she goes ahead with this, and with the much-talked-about wealth taxes, investment could be reduced.
Ordinary British workers may resent what they see as an unfair concentration of wealth in a small segment of the population. The savings of the wealthiest are needed to help drive growth and entrepreneurship.
It will be much harder to win private sector buy-in to Great British Energy and a national wealth fund if wealth is severely taxed. By assuming the role of strict steward of public finances, Reeves behaved like the new incumbents of Number 11.
The scope for doing radical things is narrow. Yet there are too many elements of the old Labour Party in what a new, younger chancellor has said. In the election campaign, growth, driven by housing and infrastructure, was the focus.
However, eliminating or postponing investments in roads and railways, which are essential for transporting goods and people across the country more efficiently, runs counter to that.
Reeves believes that doubling down on existing institutions with new NGOs is sensible. His choice of a Covid-19 anti-corruption tsar to try to recover £10bn of lost funds seems a good move.
Money could be saved by forcing existing institutions, such as the Serious Fraud Office and the National Crime Agency, to continue their work.
Similarly, the idea of a non-governmental organisation offering value for money may seem like a novel and far-fetched idea. Isn’t that exactly what the National Audit Office already does?
It would be a pleasure to see Reeves succeed as Britain’s first female chancellor. Jeremy Hunt said her legacy on growth, inflation and unemployment was positive.
But for the moment, Reeves’ optimism and vision for Britain’s future as a technology-lean, service-driven economy sadly appear to be missing.
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