Rachael Reeves's Disgrace

Allister Heath Daily Telegraph 13/12/24 Politicians never create wealth, but they often destroy it. Rachel Reeves has only been Chancellor for 18 months, yet the costs that she has inflicted upon our beleaguered private sector are already unquantifiably large. Rarely has a chancellor squandered so much GDP in so little time, or failed to understand that, in economics as well as in war, careless talk costs livelihoods.

GDP fell another 0.1 per cent in October, and has now shrunk for four months in a row. As the economist Julian Jessop points out, GDP has contracted in nine of the 16 months of the Labour Government for which we have data. The public sector is doing well: the private sector, which pays for everything and everyone, is shrinking. We may see a recession but, even if we don’t, it is quite possible that the economy will never catch up the squandered opportunities of the past 18 months. It is a calamity, and one made in Downing Street. Reeves’s horrendous tax increases have wreaked havoc with incentives, reallocated resources from high-productivity private firms to low-productivity public services, discouraged companies from spending, and chased away entrepreneurs, investors and many ambitious people. It’s not just her actual policies, bad enough as they are, that are reducing the size of the economy: her incessant verbal interventions, her leaks and inane spinning have also had a direct impact on animal spirits. Few chancellors manage to tax the economy into the ground and talk up a recession simultaneously, but Reeves has succeeded in both. She is truly an appalling Chancellor and an incompetent politician. I predict that she will be removed in 2026, though her departure may well have to wait for the defenestration of Sir Keir Starmer, which I also believe will happen next year. It would be unfair to pin all of the blame for the economy’s woeful state on Labour, however. Yes, growth was returning under the Tories, but they hardly covered themselves in glory during their 14 years in office. They bought into the social-democratic Kool-Aid, and plastered the country with ever more regulation and distortionary taxation. The foundational error for the Tories came at some point in the early to mid-2000s, when the party lost confidence in its own beliefs, and repudiated Thatcherism. It signed up to the destructive Blair/Brown consensus; its new argument was merely that it would manage statism better than Labour could, which sounded clever during the financial crisis but is the kind of thing politicians always say when they have run out of ideas (it was also Reeves’s message prior to the 2024 election). Such a betrayal would have been stupid and cowardly at any time, but it was especially ridiculous given that the Brownite model had already failed by the time the Tories embraced it, as a few avant-garde economists at the time (David B Smith, Bernard Connolly and others) realised. Yes, it was hard to fight Labour at the height of Tony Blair’s popularity, but that wasn’t an excuse. The Tories had predicted that Blair and Gordon Brown would wreck the economy, and yet growth seemed to keep coming, quarter after quarter. The chancellor kept boasting, ludicrously, that he had “ended boom and bust” (in fact, we were in the upwards phase of one of the greatest ever upswing/downswings). The Tories were bamboozled: they had warned that Labour’s re-regulation of the economy, its quangos and its EU harmonisation, would push up unemployment, and yet none of this was immediately visible from the statistics. The Tories had opposed Bank of England independence – but, in its early incarnation at least, it worked. The Tory analysis was skin-deep and naive, but the party was rattled. It struggled to find a credible economic counter-narrative – a problem that continues to plague it to this day, and that Reform must also address (ditching net zero is great, but not enough). Brown was even able to cripple private pensions and start to roll out stamp duty without Middle England fully realising. William Hague’s disastrous election defeat of 2001, when he only managed to gain one per cent of the vote and one extra seat in Parliament, wrecked Tory confidence. The Tories kept on attacking Brownite economics under Michael Howard, but the David Cameron years saw a different approach. The party decided to hoist the white flag. It pretended that it wanted to reduce immigration and make a few other tweaks, but the reality was that it bought into neo-Brownite economics and into the social-democratic consensus more broadly – EU membership, radical environmentalism, ever more regulation, “progressive” taxation, no real public sector reform other than salami-slicing. Even at the time, this was obviously a calamitous strategy. What the Tories hadn’t realised was that the Brownite model had already imploded at the very same time Cameron was seeking to hug hoodies and huskies. Real wages in swathes of the economy were doing badly. The reliance on immigration was extremely unpopular. There were question marks over non-City, non-London productivity. By the mid-2000s, the economy was being propped up by cheap credit, debt and mass immigration; without this pump-priming, and the billions of pounds in tax revenues from an exuberant banking sector, the economy would have looked visibly weaker than Brown was able to make out. The bubble in the City and the financial services industry was camouflaging an increasingly pathological economy. When the credit mania burst in spectacular fashion in 2007 with the demise of Northern Rock, Britain’s economic emperor was soon exposed as shockingly naked. The economic miracle of the latter Brown years turned out to have been a mirage. The growth we thought we had enjoyed was the product of leverage, CDOs, moral hazard and cheap central bank credit. The Thatcherite critics had been right all along: Brown had failed, but few had noticed, especially not the metropolitan elites. This surrender to Brownism was one of the central reasons why the entire Tory project, 2010-24, ended in catastrophic failure. The Cameron version of economic conservatism was largely limited to an ersatz austerity to rescue the country after the crash; typically, George Osborne put up taxes too much and didn’t cut spending enough (contrary to what has often been claimed by allies and critics). He often slashed the wrong areas, and didn’t re-engineer the state. Difficult conversations about how to finance and manage healthcare and pensions were never had. Disincentives and endless attacks on the “rich” and the City were par for the course. The case for capitalism wasn’t properly made. Fast-forward to 2026, and the Tories and Reform will have their work cut out. They need to attack Reeves on the economy, which is easy given her almost unbelievable incompetence and malice. But they must also construct an alternative, fully-formed economic and tax policy, which will be harder. We need an-in depth, credible, fully costed plan for tax simplification. We need a project to reform welfare and reduce dependency. We need a policy to cut immigration without creating labour shortages: millions of people on welfare need to be transferred into the workplace. We need policies to boost private sector investment and capital accumulation. We need to ditch net zero. We need an entrepreneurial revolution. We need Britain to give birth to a new generation of Apples, Googles, Teslas and other world-beaters. We need real, genuine deregulation. We need to build more and better homes. We need a plan to tap the private sector to spend a fortune rebuilding our infrastructure, including new roads, power plants and reservoirs. We need a new model for monetary policy which promotes very low inflation, stability and private sector growth. We need to privatise much of the public sector, while encouraging competition and open markets. The list goes on. Reeves is a disgrace, but Reform and the Tories need to demonstrate that they will actually fix Britain’s problems. The Right’s problem for the past 30 years is that it forgot the lessons of free-market economics. Reform and the Tories need to start reading, and thinking, and fast.