With big business left virtually untouched Bryn Jones sees Chancellor Reeves’ rejection of the everyday economy opening the way to a Harris-style defeat
In 2017 Labour’s current Chancellor of the Exchequer, Rachel Reeves advocated the importance of the “everyday economy”. This focus would follow the efforts made in Preston – and later in Wales – to build “community wealth” by coordinating contracting, investing and spending within the local economy. Reeves also argued that “Big Business” was to be made more accountable and economic democracy and mutual enterprises encouraged.
Fast forward seven years and Chancellor Reeves takes a quite different tack. True, there are small nods in the direction of the local economies of High Street retailers, services and community businesses. However, quite different sectors are the most favoured in her fiscal measures. Following the post-election line of priming big businesses as the engines of investment and, thereby, Labour’s Holy Grail of economic “growth”, there are fiscal favours to the big boys, such as the freezing of Corporation Tax at a level below the rates in France, Germany, Italy, the Netherlands and the USA.
Likewise, reportedly in response to intense lobbying from its trade organisation, a threatened increase of 17% in profits on private equity deals was reduced to a mere 4% . Other sectors of capital were targeted for increases, such as the raising of inheritance tax on farming estates and small reductions in the tax concession known as Business Asset Disposal Relief. However as Reeves herself said in her speech: “the UK will still have the lowest capital gains tax rate of any European G7 economy”.
The Budget revealed that the big revenue earner for the government was the left-field raising of the employers” share of each employee’s National Insurance contribution. It’s true that this was tempered, for some, by 40% relief on business rates for smaller businesses in the retail, hospitality and leisure industry in 2025-26; as well as a higher “Employment Allowance” (from £5,000 to £10,500) allegedly freeing 865,000 employers from any National Insurance liability. It’s also true that the percentage increase will be small,13.8% to 15%. However, the threshold for payment is to be reduced from £9,100 per year to £5,000. For a small business employing, say, 30 people the extra N.I. cost could be around £19,000 per annum. Primary care organisations, like General Practitioners, and social care providers complained immediately that current state funding is inadequate to cover this rise in N.I. costs. More generally, local and community businesses in that “everyday economy” will be forced to rationalise their employment costs, or to jack-up prices. Assuming constant business volumes, these employers will have three basic options: 1) make redundancies and redistribute tasks to retained employees, probably increasing their hours; 2) cut wages all round; 3) close down the business. Whichever option they choose the net effect will be reduced incomes and levels of trade in the local economy. These scenarios will not help either Labour’s over-riding priority of economic “growth”, or the control of inflation.
The Budget has been criticised from the Right as a return to failed “tax and spend” economics. This is wildly inaccurate as the boosts to the NHS and education are explicitly temporary, emergency lifelines that will only partly compensate for over a decade of austerity cuts. It has also been criticised from the Left for precisely that latter reason and for continuing other austerity policies, such as the squeeze on local authority funding, abolition of the Winter Fuel Allowance and for continuing the child poverty caused by the two-child cap on Universal Credit entitlements. However, two other political implications stand out.
Firstly, there is the abandonment of that focus on the everyday economy of localities, which will be most visible and impactful for the electorate as a whole: think “left behind” Brexit voting areas. Labour is pinning its hopes on big business lured by its promises of relaxed local planning rules, co-funding — which will resemble new Labour’s now notorious Private Public Partnerships — via the new National Wealth Fund, and the maintenance of a low rate of Corporation Tax. The second political lesson is Labour’s ambivalence towards gross inequalities of wealth. A few of the more glaring aspects of elite wealth have been picked off. Fuel duty on private jets has been increased and the aforementioned inheritance tax privileges curbed. However, the bulk of concentrations of private capital that could have been milked have been left intact. Yet a 2% general Wealth Tax, has been predicted by Tax Justice to bring in £24 billion per annum, from asset holdings over £24; dwarfing the amounts likely from the hotly contested rise in inheritance tax on farms.
Wealth inequalities will hardly change. Indeed the word inequality is completely absent from the Budget statement. The Budget concretises an implicit distinction in the Starmer-Reeves outlook: namely that between the deserving and undeserving rich. With light wrist-slapping of the latter – which includes private school patrons, non-doms and private jet users. While the deserving rich – corporations, property developers and the financial speculators mis-classified as potential “investors” – are left free to carry on allocating their profits as they see fit.
The Budget has undoubtedly corrected a few of the discriminatory injustices of Conservative rule: some public sector underfunding and the inflation-ravaged national minimum wage. However, it will do little or nothing for the growth project or the living costs and standards of most people. Labour’s gaze is instead fixated on big projects and big infrastructure enabled by big business investment. It resembles, though lacking the same financial firepower, Bidenomics in the USA. The US electorate’s verdict on that strategy, opting instead for its nemesis, Donald Trump, should cause Labour to think very hard. The impact of the budget and its present economic strategy on voters” experience of the everyday economy could mean support for Labour at the next general election will mirror the fate of Kamala Harris and the Democrats in the USA.