Is the Chancellor about to break her manifesto promise?

0:01This is a Global Player Original Podcast. This isn't about re-litigating old choices. It's about being honest with the people about the consequences that those choices have had. It is my job to deal with the world as we find it. Not the world that I might wish it to be. Not to commentate or to speculate, but to act. It's hard to overstate how unusual this morning's event was. Chancellors don't come out and do a speech just three weeks before they stand up and give the budget. And when Rachel Reeve said it's time to be honest with the people, what was she exactly honest about? She didn't answer a single question that she raised.

0:53Kemi Badenot called that speech a waffle bomb. Might she be right? Welcome to the News Agents.

1:04the news agents it's john it's emily and at 10 past 8 this morning rachel reeves goes into the downing street briefing room and addresses the nation on the state of the economy and as i say three weeks before she's due to give her budget and as i kind of heard the vague platitudes i I kept on thinking, what is this all about? Who is this for? What are we actually learning from this? And if the answers to that are, I don't know, then realistically, what has been gained by doing it? And as I sit here now, five hours later, I'm still not sure I can answer those questions any better. Well, why don't we let you decide?

1:52We're going to play you a little chunk of what she said, which has been called a pitch roll. In other words, laying out ground to explain why she's going to make the choices that she makes in three weeks' time. Here it is. I understand the urge for easy answers. Politicians of recent years have become addicted to shelling out for short-term sticking plaster solutions rather than making long-term economic plans. They were irresponsible then. And those who continue to push for easy answers are irresponsible now. The UK's national debt now stands at£2.6 trillion, equivalent to 94 % of GDP. Before the mini-budget, our borrowing costs were in the middle of the pack compared to other advanced economies.

2:44But now, we have the highest borrowing costs of any G7 country. Today, one in every£10 of taxpayers' money is spent on debt interest. Not paying that debt down, but just paying the interest to our creditors. At the budget last year, I changed the fiscal rules to strike... All of which is very interesting and is a statement of where we are as a country. But I thought we did all that last year. this is what Rachel Reeves was telling us a year ago so why the necessity to pitch roll again this year for further tax increases as though what we're now facing is somehow unprecedented unexpected out of the blue when the OBR have been talking about some of these issues like productivity for a very long time we knew that Trump would introduce tariffs and the like and so I'm kind And still, again, what are we saying here?

3:46OK, so if you were minded to listen to Rachel Reeves' speech, you would have sat down or tuned in in order to find out what she was going to do. Did she say, I'm going to raise taxes? She didn't. Did she say, I'm going to raise national insurance? She didn't. Did she say, I'm going to raise VAT? She didn't. Did she rule out raising any of those? She didn't. In other words, there is this whole elaborate game being played and it's being played through the media and it makes politicians and I think politics in general look really weird because the whole point of this speech, we understand, is that she wanted to try and prepare the public.

4:27Right. She wanted to tell the public what was coming at the end of November, but she didn't tell the public what was coming at the end of November. She's left it to journalists in the room to interpret by the things that she didn't say what might be about to happen. That is not a natural way of communicating with a population. That's not a natural way of communicating with the electorate. So was she actually not talking to the public at all? Was she talking to the markets? The markets are down slightly as we speak. It's now 20 past one. Was she trying to make sure that they know what's happening in three weeks time?

5:01But I mean, the whole thing is kind of ludicrous because we are in a place where we are desperate for politicians to restore trust. Right. We are desperate for the public to believe in their politicians again. We want that relationship to work, don't we? We want them to say what they're going to do and to do it or to promise not to do something and to not do it. And we want to say, OK, we've got that. We've banked that. We understand it. What we've got now is an utter muddle. It sounds as if a promise to the electorate made in the manifesto last year is going to be broken. But it hasn't even been spelled out.

5:40It's not even like Nick Clegg who kind of went, yeah, I fucked up on tuition fees and this is what's actually happening and I can't do that anymore. I mean, that was bad. But this is just this is just making people more confused about something that they know is on the way. Why is that helpful in any sense? There is the old kind of Irish joke about the American tourist who's driving in County Clare, winds down his window and asks the Irishman which way to go to get to wherever. And the Irishman says, well, I wouldn't have started from here. and I feel that about the British economy and the way the Chancellor is speaking right now which is yeah I know I know we shouldn't have really pledged that thing about not raising income tax or VAT or national insurance back in the general election so we're going to have to break that manifesto pledge but yeah we wouldn't have started from here but this is where we are now I don't think Labour have got any good options now I think that they thought that they were doing a big tough budget last year a tax raising budget it was one and done when we spoke to the Chancellor asked her about that and it's not and they're having to come back again because they didn't leave themselves in our fiscal headroom and they have made mistakes and they're now trying to kind of reposition and so today was about a nod and a wink i hope you understand what i'm saying even though i'm not spelling it out we're going to raise your taxes and that's what's coming right well why would you have the budget right at the end of november then i'm sorry i'm just like i'm not an economist here so i'm sure there are things that i'm missing but the closer you put it to the end of the year, the more people are thinking about, you know, Christmas and their money and their expenditure and what they're doing for their kids and for their families and for their next year.

7:16Why would you leave it so close to the end of the year to then give people a nasty shock, right? I don't understand, first of all, why the budget's so late. I also don't understand why all these things that have suddenly become apparent to her were not really apparent nine months ago, ten months ago, when Trump took office, when he said he was going to impose the tariffs, when we started spending more on defence, the NATO summit in May, June, the tariffs came in in April. Why wasn't that a moment to say everything's out the window? I'm not suggesting it's great to break your pledge to the electorate, but if you're going to break your pledge to the electorate, do it at a time when something has manifestly changed and you have got a reason for saying it.

8:00don't do it a month before the end of the year. Yeah, I think that what's happened is that it has been obvious for months that this is what needed to happen. But I think that there is a certain political ineptness in the operation of the politics of all of this. And so they've suddenly realised, oh, we do actually need to prepare the groundwork. We do actually need to make an argument. We were talking about this at the Labour Party conference, that if this is where you're headed, you need to start telling people and start doing this stuff and putting it in place. There has been a lot of change in the Downing Street communications.

8:33And as we've discussed before on this podcast, someone I know very well, Tim Allen, is now the director of communications. And probably there is a recognition that this is something that needs to happen, that you need to prepare the electorate for. But the problem is exactly as you say, on the micro level, it is the timescale. How can you possibly prepare this in three weeks? By the way, guys, bad news coming just before Christmas. We've got some really bad news coming your way. But the much bigger issue, and I think this is absolutely key, is the way it will just lead to an evaporation of trust in politics and politicians.

9:10It opens the way up for populists on left and right to make even bigger promises saying, look, conventional politics has let you down once more. They've said they wouldn't raise taxes. They're raising taxes. and I think this will be a really dangerous moment for the Labour government if that's what Rachel Reeves does and it looks like she is going to do in three weeks time I suppose the calculation such as there is is that better to do this now three years out from a general election than one year out from a general election but it's a mighty big gamble because people will remember it George H.W.

9:45Bush no new taxes watch my lips he served one term as president look I think The spectre hanging over Reeves at the moment is actually not George H. Bush, but Liz Truss, right? She doesn't want anything that will backfire so spectacularly on the day of the budget itself that she loses her job. The market's tank and it looks like she can't stay anymore. So this is all really, I think, about preempting her own political position, right? I mean, that's what it feels like. It's saying I've got horrible things to tell you. But, you know, can you just give me a bit of time? Can you just accept that I'm going to be telling you something horrible?

10:20So don't react too badly when I tell you. And if somebody told you that in real life, you'd be like, oh, that's fine. I'll just go away for three weeks and everything will be fine. Of course you wouldn't. You'd be like, well, that doesn't help. I'm just stressing now. I'm now already stressed about something that you're still not going to spell out for another three weeks. You're not calming down, right? I'm going to say, Emily, what the hell have you got to tell me? If you know what the bad news is, tell me now, please. I want to know. Can you imagine going to the doctor? Just calm down. Can you imagine going to the doctor?

10:50I've got bad news, Mrs Maitlis, but I'll tell you in three weeks' time what it is. It doesn't wash, and that's the problem. And, of course, the Tories have been pretty smart this morning, and Mel Stride has put out a little compilation of all the assurances that we had from Rachel Reeves a year ago. This is a once-in-a-parliament budget. I'm not coming back with more borrowing or more taxes. We don't need to come back for more. We're not going to have to come back and ever do a budget like this again. So never again will I have to do a budget like I did in October. There is no need to come back with another budget like this.

11:25We never need to do that again. But I've been to leave there. There are tag choices coming. Yeah, I mean, just a massive, easy, open goal for the Shadow Chancellor. And he took it and he delivered it within seconds of her finishing that speech. I think the other thing that really rankled in the speech was this sort of plea to the electorate, like a sort of wartime spirit of doing your thing. You know, it's the Dunkirk spirit. We're all going to share the responsibility. We're all going to carry the burden. And you're like, no, wait, sorry. The burden that we're all carrying already is that taxes have never been this high in the last 70 years.

12:05So let's put that burden to the side. But why are we now responsible? Why are we now carrying the burden for the mistakes that you have made? That doesn't add up. If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future. There is a reward for getting these decisions right, to build more resilient public finances. Yeah, each of us must do our bit. It sounds like Kitchener at the start of World War One or we're all digging for victory at the start of World War Two.

12:45And I'm not sure that that kind of washes today in a political climate where there has been relative stability. I mean, maybe bad governance and bad economic decisions taken by successive governments for a very long time. Yeah. And I think some people would say I am prepared to pay more tax. Actually, I do believe the wealthy should be taxed more. I do believe that that burden has to be sort of felt. But don't try and make me feel like it's incumbent upon me to help you out of your problem after you made those manifesto promises. That's just wrong. And the other thing that I thought that, again, jarred slightly what she said this morning was talking about, I'm restating the prime minister's and my commitment to welfare reform measures.

13:28And yeah, hang on, we saw that movie play out in the summer where you couldn't get your welfare reform measures through. There was a catastrophic, damaging U-turn and you didn't have the power to do it. So why should we take seriously now that there is this kind of cast iron commitment? Particularly when your new deputy Labour leader is somebody who was very much on the left side of that welfare push. Exactly. I bumped into a Tory MP this morning who just after Rachel Reeves had spoken, who was kind of rubbing his hands with delight about the prospect that they're now talking about welfare reform.

14:07It's going to empower, embolden Lucy Powell, who, you know, the other week was elected as Labour's deputy leader to take the fight to Keir Starmer because she has said that that is not where she thinks the Labour government needs to be. And the other thing that I thought that's, again, Rachel Reeves uses the language of honesty. We've got to be honest with the British people. And so the journalists take their cue and say, well, be honest with us, Chancellor. Are you going to raise taxes? And this is how the exchanges went. Chancellor, you made history in your last budget when you increased taxes by 40 billion pounds in the biggest tax raising budget in over a generation.

14:44You said at the time it was a once-in-a-parliament tax-raising budget, and you told me explicitly Labour would stick to our manifesto commitment not to increase taxes that working people pay. Today, do you still stand by both those promises? And if you can't or if you won't, aren't you making a mockery of the voters that put their trust in you at the general election? Thank you. Thank you very much, Beth. I will set out the individual policies, the budget on the 26th of November. That's not what today is about. Robert Peston from ITV News. Chancellor, good to see you. You've just made the case, in effect, for raising taxes by tens of billions of pounds.

15:33The HMRC stats don't lie. If you do that, you will have to put up taxes for millions of people, including those you call working people, won't you? Well, today is not about individual choices. They will be set out in the usual way in the budget. What is this dance that we're playing, where the only people who mention tax rises are the journalists in the room who are trying to elicit an answer. And the Chancellor, who has called everyone there in order to tell them that there will essentially be tax rises in the budget, is standing there saying, well, you can't expect me to spell out what's going to happen in three weeks' time.

16:21It is such a, I mean, I just come back to this, it is such a political game that is being played here. And look, I understand that this is dependent on markets and response and, you know, keeping the sort of things on an even keel. But genuinely, it is such a game that is being played there where we are being forced to ask the questions that she refuses to answer, having called us all there to tell us that the thing that she won't answer is actually going to happen. Right. The old fashioned way of doing this, and it was probably so much better. But the old fashioned way of doing this was to do a briefing on a Saturday night to some of the Sunday journalists to say, look, there's a fair chance you can quote it as treasury sources that taxes may have to go up.

17:07She's already done that. I mean, she did that to Sam Coates two weeks ago. Don't stand there and say, I want to be clear when what you have in your arm is a fog machine, which is just spraying out fog all over the room. And you cannot see where you are going by the end of it. And that's what we got at the end of that. You know, I've come here with a purpose, but I'm not going to tell you what that purpose is. And you have opened the kind of doors to the opposition, to Kemi Badenok, who is cheerfully walking through it. This morning, we saw the extraordinary spectacle of a chancellor just days before a budget rushed into a panicked speech.

17:49We were told that this was the great moment when Labour would show they had a plan for growth. Instead, what we got was a masterclass in managed decline. A Chancellor claiming she was just going to set the context, but instead of clarity, business leaders are none the wiser, investors are confused, workers are anxious, because the truth is Labour doesn't have a plan to get Britain working again.

18:19The Chancellor's speech was one long waffle bomb. A laundry list, a laundry list of excuses. She blamed absolutely everybody else for her own choices. Look, while we're talking game playing, I mean, there is a world in which what happens at the end of November is not as bad as we're all now expecting. Back to your sort of doctor's metaphor. And she's got everyone worried so that when the thing itself comes out, it's not as bad as we thought. Maybe, you know, one person, close number 10, has suggested to me that, you know, the black hole isn't as bad as it is. Another person has said it will probably mean whatever this is, it will probably mean more fiscal drag for most and tax heights for those on£50 ,000 or more.

19:07In other words, the broadest shoulders. So there may be something going on here where she panics everyone and then sort of stops the alarm. I don't know whether that will work because I think by that stage, people are already trying to work out what their next year looks like. They're trying to work out, frankly, whether they trust anything that comes out of the Chancellor's mouth right now. But it is possible that there is no headline rate change for whatever ordinary people is. And we now know it's not ordinary people. It's the phrase is working people. Working people is£46 ,000. That's so insulting, isn't it?

19:44I mean, it's so insulting to someone. does someone on 50 grand think they're rich think they're part of the plutocrat class i think that you know 50 000 you've got a mortgage you've got kids at school you're making ends meet and so i think that this kind of again it was one of those kind of clever phrases that look clever at the time and the closer you examined it about what constitutes a working person is just ludicrous i also think that you know emily you and i have been through years at the BBC where you'd have these reviews take place where swinging cuts were on their way and when the cuts weren't quite as swinging as we thought they were going to be we all go oh phew we can breathe more easily I don't think you can do that with the economy because people are making real life decisions now about investment and the like whether you're an entrepreneur whether you're a business whether you're a household and don't faff around with trying to kind of scare the bejesus out of people now and then say thank god three weeks later it wasn't quite as bad as i thought i think that's just again more dishonest politics i think that if you're going to you need to be straight with the people you need to communicate clearly and if you cannot communicate clearly because your budget is not for another three weeks then maybe the best thing to do is keep stum or maybe that would be the advice today or bring the advice or bring the budget forward how much more do they need to learn before they can deliver the budget i mean are we still i don't know are we still waiting for the OBR I think we are the official numbers and also what productivity is going to be and what it what the productivity assessment is and that will kind of determine you know how much money she has to raise so look I know that we have talked more about the politics of this speech not the economics and for those of you who are none the wiser we are going to try and set out what a good budget or a sensible budget or a thoughtful budget could look like after the break

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22:09The News Agents. Well, joining us now to try and make sense of the Chancellor's speech and maybe to explain the things that we might have missed, in all honesty, is Helen Miller. She's the director of the Institute for Fiscal Studies. Helen, did you did you come away from the Chancellor's speech this morning knowing more? I don't think so. No, I think what I learned really was I was sort of surprised the speech happened at all. It's very unusual for a chancellor just three weeks before her budget to be doing one of these big public speeches. I guess what I learned is that Rachel Reeves feels the need to talk to the public directly and do some pitch rolling in Treasury language about what is happening.

22:51So I guess I learned a bit about what the Treasury thinks needs to happen to get people warmed up for the budget. But on the big picture, I think it's what we were expecting. Everyone expected that the Office of Budget Responsibility would have handed Rachel Reid a set of forecasts showing that if she doesn't do anything, she'll be off track on her borrowing rule and therefore she'll have to take action. She said time and time and time again that she'll stick to her fiscal rules. No one's surprised she doesn't want to cut spending. So what she was basically warming up for today was tax rises. But I think I would expected tax rises to be in the budget.

23:23People look at these moments and think these are economic decisions, but ultimately, in a sense as well, they are political decisions. If you were just approaching this with a need. Here's the balance. Here's the balance sheet. This is what we need to do to balance the books. If you weren't trying to get elected. If you were just if you were just doing what was right for the economy, is it that she needs to raise taxes or cut spending or what? What are the simple, obvious things to do? Because so much of this gets lost in the political debate. Yeah, I think it really isn't a single right economic answer in the sense that it really is a political choice to what extent you want to have a bigger state and therefore have higher taxes to pay for it.

24:06Or you want to cut back spending. I think different models there could work. On the tax front, what I'd say is I think we have to break out of this cycle of only ever talking about whether taxes should go up or down and talk about, well, let's make them better. so I'd say is however much money Rachel Reeves wants to raise she should be thinking not just about how to tweak the rates but how to make the structure of the tax system better and we can go through for hours every example of that but really across the tax give us a simple one then housing taxes is a great example lots of kites being flown about whether she'll try to put higher taxes on higher value houses we have a housing tax system that is embarrassing honestly I mean the council council tax is based on values from 1991.

24:49Can you imagine doing that with any other part of the tax system? Taxing incomes or spending from 1991 is, it's just mad. It's regressive, meaning that higher value properties pay a smaller share of their property value in tax. And we have this stamp duty, which I think deserves a good kicking at every possible opportunity. It's a dreadful bit of the tax system. So rather than just tweak the rates of this or find a way to pop up council tax let's revalue council tax let's base it on up-to-date values we could have a you know i'd go the whole hog on scrap stamp duty and raise it through a reformed council tax instead and even if you think you can't do that in one budget and i would if i were chancellor but if you couldn't then at least take steps to move towards that i really hope we don't see rachel reeves just trying to get a bit more from stamp duty or trying to do some horrible bolt onto council tax that that sort of makes it a bit you know more complex you've said yourself helen that as soon as you start to look at the whole tax system, it's just this horrible jumble of confusion.

25:45And I guess the simplest thing to do would be to start at the beginning and say, well, what happens if we just had a tax system that everyone could understand, like the flat tax? I mean, the flat tax always sort of raises its head and then sort of goes again. In other words, everyone would pay pretty much the same proportion, but on a different income. Would that work? So I don't think that would work in, well, I guess you could do it in some sense. I think that would be a radical departure from where we are now. I think there are reasons to have multiple taxes. So reasons to tax spending and income and properties and not just have a single tax.

26:21And I think there are political objectives that say you want to have at least some bits of the tax system be progressive, and people will disagree about how progressive. But there's a big gap in between one single flat tax and the kind of thing we have now right so i think there are lots of ways we could move towards a simpler more transparent better free climate growth kind of tax system before we got as far as having to you know delete all but one tax so so do you sense that there is the appetite slash bandwidth within the treasury to think these bold thoughts right now what do you think it's kind of okay we'll find a fiver here and we've got a tenner there and we've got you know a 20 pound notes somewhere else.

27:01Where's the loose change, Joel? Yeah. So I think there are always people inside the Treasury who think good thoughts. The question is whether those thoughts kind of get up enough up the political chain in some sense. And really, ultimately, whether the Chancellor is willing to be bold and sell that to the public and to her own party. So, you know, tax reform, you know, would require some explanation. You would have to not just say, I'm adjusting the following rate. You'd have to make an explanation about the problem with the system, what you're going to do with it, you'd have to create some more losers.

27:31There'd be winners, but there'd be losers too. So I don't think the problem is that the people in the Treasury aren't thinking good thoughts. I think it's that you have to find a politician who is willing to fight for tax reform and say that, look, there's something worth having here. And the thing worth having is to say that, you know, we could basically raise what we need to raise at a lower cost, or we could raise the same with lower taxes. It's, you know, it's dragging on economic growth and on the size of the tax base in a way that is genuinely costly. Would there be an argument in your mind for getting rid of the triple lock?

28:02In other words, the thing that protects pensioners, people towards the end of their life from ever missing out because there are so many locks on the lowest amount that the pension would yield? I think that's an easy question. Yes, absolutely. And I think because... You'd get rid of it. Yes. And I think for the simple reason that whatever, I think it's a political choice as to how much you want to pay people for the state pension relative to earnings or prices or whatever you're interested in. But the triple lock has this really horrible feature that it ratchets up over time because you always take the highest of eight of a set of three numbers.