Who will win the battle of the bean counters? In the pessimistic and fiscally conscious corner we have Rishi Sunak, former foreign minister and prime minister. His opponent, desperate to assume the mantle of economic credibility, is Labor’s Sir Keir Starmer. Both refuse to cede ground on British finances while extolling, with ironic immoderation, their enthusiasm for balancing Britain’s books.
The conflict entered a new uncertain phase this week when the prime minister accepted recommendations from independent public sector pay agencies to raise wages, with increases ranging from 5 percent for the armed forces to 7 percent for police. But just in case he thought the prime minister was stepping into fiscal boondoggle territory, Sunak carefully underscored the trade-offs involved in conceding government spending.
Reemphasizing his famous fiscal restraint, the prime minister explained that wage increases No be financed through loans or tax increases. Instead, existing budgets will be looted for extra money, and other changes to visas, the NHS surcharge and civil service recruitment will make up the shortfall.
Never has a prime minister looked so happy to announce spending cuts. In her summer matchup against Liz Truss, Sunak embraced bean counting as essentially, no-nonsense, “conservative.” Thursday’s announcement on public sector wages, therefore, was the Sunakian credo in its purest form. The PM could not have been clearer: “Budgets are not infinite.”
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But this pointedly Sunakian phrase, with its unapologetic emphasis on fiscal prudence, could just as well have been uttered by Keir Starmer. After all, it’s no secret that the Labor leader has worked ruthlessly to pursue the incentives of post-Truss politics by re-emphasizing his party’s economic platform. Accepting the framework that Truss-style fiscal easing rattles markets, Starmer signals that Labor is ready and willing to steal the mantle of economic responsibility from the Conservatives.
The dictates of Truss’s tax legacy therefore weigh heavily on Labor’s offer. In fact, standing firmly on its platform of fiscal stability, it is far from a foregone conclusion that Labor will adopt the government’s position on the wage review recommendations. Speaking two weeks ago on the issue, with government officials reporting ministers could override independent bodies, Shadow Chancellor Rachel Reeves positioned herself as a long way from accepting wage recommendations of around 6 per cent. The workers would ultimately negotiate a “fair and affordable” deal with the workers, she insisted.
Reeves knows that the market collapse triggered by Trussite’s tax easing remains fresh in Britain’s collective memory and that Trussonomics continues to fuel the prominence of spending commitments. In turn, the shadow chancellor has perfected the art of rebuffing charges of fiscal profligacy. He asks about his budget plans and, before Reeves explains Labor’s positive tone, he first resorts to his iron oaths.
Reeves’ reflex reach for his tax rules shows just how intensely Labor is committed to the post-Truss political game. After the party so effectively criticized the former prime minister for her poor fiscal discipline, which in turn created a huge electoral advantage, key figures now want to point to Labour’s own economic credentials. It means that while fiscal rules nominally serve to facilitate good policy making; For Labour, it is not Britain’s debt that is the target of Reeves’s oath, but the undecided voter.
Still, by accepting the framework that further fiscal easing will be impossible for the foreseeable future, Labor has ceded a significant amount of ground in politics. This essential problem for Starmerite is compounded by the fact that, with Rishi Sunak at its helm, the post-Truss political landscape is not the only Labor to bully.
Indeed, after the mini-budget, Sunak has sought at every stage to test Starmer’s fiscal discipline and tighten the straitjacket of Labor politics. The prime minister’s essential trick, despite his supposed fiscal prudence, is to push spending forward and roll back austerity, all while staying flexible within his own self-imposed fiscal rules.
The November Autumn Statement, for example, announced that fiscal policy will actually be relaxed in the current parliament, and that Treasury measures will start to hit only in 2024, when the UK may have suffered the worst of stagflation and /or expelled the curators from office. In addition, Foreign Minister Jeremy Hunt also outlined a new fiscal rule in his speech, namely “that the underlying debt must fall as a percentage of GDP in the fifth year of a rolling five-year period.” In response, Rachel Reeves did not object, she could not, lest she be labeled fiscally intrusive.
And so, Labor stands firm. In fact, Sir Keir and Reeves jointly undertake critical rearguard action to re-emphasize their economic seriousness. The party’s £28bn climate pledge was watered down in this regard.
What’s more, Reeves’ most prominent fiscal rule for debt to fall as part of national income within a first Labor term is actually more restrictive than Hunt’s. lamination rule mentioned above. (hunting lamination objective, unlike that of Reeves static target, requires the government to be on track to meet a rule a certain number of years in advance based on the most recent forecasts, with this date advancing as time passes).
This point underscores a key ambition of Keir Starmer’s Labor Party: to match and even surpass Rishi Sunak’s party on issues where a progressive party might reasonably be seen as vulnerable. In this, fiscal policy is no different.
Of course, by prioritizing prudence above all else, Labor becomes hostage to its own self-imposed stolidity. Starmer’s message about a rigid fiscal framework is so overwhelming that it only takes one slip, one maverick infraction to undermine all the party’s work after Truss. And with Labor always exposed to charges of wasteful taxation and spending, those evil twins of left-wing mythology, the party is always expected to do more than the Conservatives to signal allegiance to a sound tax regime.
This iron rule of British politics also gives the Tories some leeway in economic policy. With the Conservative party less open to attack for what is perceived as reckless spending, Rishi Sunak knows he can circumvent the strange tax oaths, wriggling out of spending commitments without overwhelming criticism.
It is a fact that explains the recent spring budget which contained a series of measures focused on trying to boost economic growth in the UK. Freebies include support for childcare costs, more generous tax treatment of business investment, changes to pension tax breaks to try to reduce incentives for early retirement, and more incentives for applicants to of benefits start working.
In short, it left the chancellor with just £6.5bn of margin against his main fiscal rule to ensure debt reduction over the long term. Furthermore, Hunt only gained OBR’s consent to these measures with further commitments on future tax adjustments, one of which is to increase taxes on gasoline and diesel in line with inflation each year. but like him financial times Point out:
In the Budget, Hunt (actually) followed the practice of every Conservative chancellor since 2011 by freezing fuel taxes for 2023-24, saying that because inflation was high, “now is not the right time to increase fuel tax with inflation.
Budgets always contain a bit of sleight of hand, but Hunt’s was more deceptive than most. It also served to underscore that Britain’s banal bipartisanship has as much to do with the Tories’ left turn as Labour’s right turn.
But aside from Hunt’s spring budget, there are also serious questions about where Rishi Sunak is finding the money to fund his party’s new NHS workforce plan. Asked earlier this month about sky news how the government would find the funding, health secretary Steve Barclay relayed that it would be “through Treasury”, adding only: “This is additional money, it will be announced in the usual way through fiscal events”. Host Sophy Ridge correctly responded: “If Labor announced a £2.4bn policy without saying where that money would come from, it would follow them like a rocket.”
Rather, the overriding message of Reeves’ fiscal rules is that the party will never make spending or tax promises without saying where every penny is coming from. Shadow Health spokesman Wes Streeting has happily relayed that Labor’s own NHS labor scheme will be funded by abolishing homeless tax status. Labor’s commitment to their economic oaths (conspicuously stronger than those of their Conservative counterparts) seems unwavering.
Preparing to inherit an economy in dire straits, Keir Starmer can take solace in the thought that, in the battle of the bean counters, he is sticking most rigidly to his party’s self-imposed fiscal restraints.
But victory on this point means politically difficult questions arise in other areas. Firstly, with the Tories openly looting his policy lab in areas like childcare, how does the Labor leader substantially differentiate his platform from that of Rishi Sunak in a general election campaign?
But second and more profoundly, how does Labor work to reconcile its desire to implement change, encapsulated in its watered-down climate commitment, with its fiscal position, conditioned by post-Truss policy, Conservative ‘delay pain”, a terrible economic inheritance and fear of attacks from conservatives on “taxes and spending”?
So Keir Starmer may be winning the battle of the bean counters. But the ensuing question, which will ultimately define Labor output to 2023 and beyond, is at what cost?
As it is, Starmer’s political incentives point to a ruthless pursuit of caution in the run-up to the election.