Ross Clark

Could Rachel Reeves’s ‘black hole’ be filled not through tax rises or even spending cuts but rather through getting an extra two million people into work? That is the claim this morning made by the Jobs Foundation, a think tank set up by Matthew Elliott, now Lord Elliott, who formerly ran the Taxpayers’ Alliance. Raising the employment rate from 75 per cent to 80 per cent of the working age population, it claims, would raise an extra £20 billion in tax. That is not quite the £35 billion to £40 billion worth of tax rises which we have been briefed to expect in Wednesday’s Budget, but never mind – all those extra jobs would be a huge contribution to the public purse. How do you create those jobs and, equally importantly, persuade British people to fill them?

Remember Gordon Brown’s ‘golden rule’ – that over the course of the economic cycle the only net borrowing he would allow was to fund investment? As for current spending, he told us, he would pay down debt in the good times so that he could borrow in the bad. It sounded reassuring, until Brown started to fiddle with the figures in every conceivable way. He shunted debt off the public balance sheet via private finance initiatives.  Is anyone confident that Reeves really will invest her extra £20 billion a year in such a way that it will earn the taxpayer a return? He kept stretching out his idea of the economic cycle, so it seemed that we would never get to the end of it, obviating the need ever to balance the books.

Could Rachel Reeves really be so brazen as to lumber private sector employers with having to pay national insurance contributions (NICs) on their employees’ pension contributions – but to spare public sector employers the same burden? That is what is being reported this morning. It has been suggested that, in next week's Budget, the Chancellor will announce the end of an exemption for private sector employers, which currently ensures employers don’t pay NICs on pension contributions. At the same time, Reeves is proposing to instantly compensate public sector bodies so they are effectively spared from have to bear the burden. This would be crass for two reasons. Firstly it would be a clear breach of Labour’s manifesto promise not to raise NICs (as well as income tax and VAT).

There is a big danger in today’s government borrowing figures for September being a little less bad than was expected by many observers. It will lead to claims that the Chancellor has enjoyed a ‘windfall’ prior to next week’s Budget, therefore lessening the need for spending cuts. No, there is no windfall. Until recent years, the idea that the government would have to borrow £16.6 billion in a single month would have been received with horror. True, September is not generally a great month for government finances, and the level of borrowing in the year to September – at £79.6 billion – is only around half the size of the deficit Gordon Brown bequeathed the country with when he left office in 2010.

If the public is worried about what lies in store in Rachel Reeves’ first Budget, there are few signs of it yet in their shopping habits. The latest retail sales figures, released by the Office for National Statistics this morning, show that sales volumes were up by 0.3 per cent in September. Over the three months to September – a more reliable figure as it is based on a lot more data – sales were up a very strong 1.9 per cent. It seems that the long covid winter in the retail world may finally be coming to an end: though sales volumes in September were still 0.2 per cent down on the level they were in February 2020, on the eve of the pandemic.

The tragedy of the coming Budget is that it could have been a great reforming Budget. Instead, it now looks like being an extremely messy one, with the Chancellor buffeted by political winds into coming up with tax changes which are bizarre, punitive and which end up pleasing no-one. The latest symptom of this is the suggestion, reported in the Times today, that Rachel Reeves may increase capital gains tax on shares but not on property. Why should you pay more tax when you sell your shares than when you sell an investment property? Reeves was right the first time, when she hinted that she was going to equalise capital gains tax with income tax.

So, is it really time in invest in Britain, as the heads of fourteen banks and other financial institutions have declared in a letter to the Times today, ahead of Keir Starmer’s investment summit? Sorry, but the more that I read the letter, signed by Amanda Blanc of Aviva and David Solomon of Goldman Sachs among others, the more it reads like a note scrawled by hostages suffering from Stockholm Syndrome.     Do they really believe that Britain was a basket case under the Tories but that now under Starmer and Labour it has suddenly become a land of opportunity? Or are they fearful of what Rachel Reeves might have in store for them in the Budget, with this part of a lobbying effort to avert the worst?

Water companies have sweated the assets they were handed upon privatisation in the late 1980s. They have failed to invest properly, and have regarded fines for sewage spills as a business cost, to be balanced against the price of investment, rather than as a deterrent. They have, as Ofwat chief executive David Black told the Today programme this morning, blamed the weather rather than their own failures. Sewage spills more than doubled last year All this is true. Even so, is what the water industry really needs at the moment an order to return £158 million to customers through lower bills in 2025/26? That is what Ofwat has just ordered the water companies to do, as a punishment for failing to meet targets for reducing sewage spills.

How the ground is shifting now that Labour finds itself in government and is actually responsible for UK energy policy. This morning, workers at a glass factory on Merseyside were treated to an unusual visit from the threesome that is the Prime Minister, Chancellor and Energy Secretary. Keir Starmer, Rachel Reeves and Ed Miliband had travelled up to announce the latest twist in the government's energy policy: a £22 billion investment in carbon capture and storage (CCS). This, apparently, is an inspired policy to create jobs, help us accelerate to net zero and boost our economy. It is also extraordinarily similar to an announcement that the previous government made in March 2023, when Rishi Sunak pledged £20 billion towards CCS projects.