Coffee House Shots
Labour's '£20 billion black hole' strategy
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Now, one of the first things Labour did on entering government is Pat McFadden, who is in the Cabinet office, but previously worked under Rachel Reeves, the Shadow Chief Secretary to the Treasury, and ordered all the departments to bring out your debt, which was effectively trying to find any unexpected problems, perhaps any expected problems that they could claim are unexpected, but effectively just nasties. So places where more spending is required, where there is a spending shortfall, areas where perhaps the Tories in their previous spending plan said there would be cuts, but those cuts look unachievable, ultimately assess where the biggest dangers are, poor each department, for delivering their aims. And they've been working on this document audit, call it what you like, project fear, who knows. And then planners for Rachel Reeves to unveil that on Monday, to then also give a speech, effectively saying their heritage is even worse than we thought. So if you think about Lee and Burns, no money, note that the Tories and the Lib Dems talked about for such a long time from 2010 onwards. This is Labour trying to create their own version of that. Now, in this case, as far as we know at least, there is no Tory minister who's been so stupid as to leave a jokey note that can be misconstrued as X. Though I do believe that some departing is actually the state left some surprises physically in some of the offices, maybe for another podcast one day. Instead, they're trying to find ways to create the effects of that note by saying, you know, for all this talk from Rishi Suneck about the economy turning a corner, let me tell you they have trashed things. And the reason they went for this early election in the summer, not the autumn was because deep dad, they knew things were going to get worse. Now, the Tories have given them a little bit to play with them. You speak to figures who were placed their Tory campaign or Rishi Suneck, and it does feel, you know, concern about prisons and prison numbers were a factor in terms of going in the summer rather than the autumn. Now, they might say that was because there was a consensual servants might work with Labour to tie the government's hands and the Conservative parliamentary party was uncontrollable. But there's still the general sense that there are some really big problems coming up, no matter how you diagnose the problems, and they were worried about the risk of waiting. And I think the question is, what Labour is trying to do is to set the narrative. So if they make slow progress, if Rachel Reeves, which I'm sure will come to has to make some surprise difficult decisions in her autumn budget, ones that potential ruled out in the election campaign, they have covered to do it to effectively see a doctor's mandate. And also they have a narrative story to tell. So if you get to, you know, near the next election, and there hasn't been enough change of progress and people perhaps have had to deal with some unexpected costs or taxes or pain in some ways, the blame is at least partially on the Tories rather than just the new Labour government. And Kate, you've written an excellent blog on Coffee House this morning talking about how actually, you know, full Rachel Reeves efforts, et cetera, we knew all of this before the election campaign. But you say that it's a sort of fiscal fiction, if you will, in which both parties, both the main parties kind of collaborated unspokenly throughout this whole election campaign. Yeah, it's a narrative that Labour has been trying to build for some time now, long before they actually won the election, which is that they're going to have to get into government, discover what's really there, pull out the skeletons in the closet, and only them will they know what kind of tough decisions they need to make. And the outstanding problem with this narrative has always been that thanks to the Office for Budget Responsibility, the independent forecaster that is doing assessments around these fiscal events, we know the information. It's out there in the public domain. Even this £20 billion headline figure that Reeves is expected to announce next week, that number's been going around for months, if not for a year. I mean, this kind of black hole is being talked about during the autumn statement last year. Certainly in the March budget this year, the OBR, the Institute for Fiscal Studies, they have been highlighting the tens of billions of pounds that are missing from departmental spending over the next parliament. And this was a question that was always put to the Tories, are you seriously telling us in order to get these tax cuts and to stick to your fiscal rules that you're going to start slashing departmental spending over the next parliament or really not raising budgets in line with inflation and so forth. And they never really wanted to answer that question. Labor didn't want to answer the question either. And that's why neither party talked about it in the general election. And I remember speaking to Paul Johnson here at the spectator about this. And he was saying, look, not only have they not accounted for these for this departmental spending in this fiscal black hole, they haven't accounted for a lot of things like the long-term NHS workforce plan. These are extortionate plans. They're going to cost so much money in the medium term. No one wants to talk about it. So, you know, labor has a mandate to make change. I think what they want to do is try to own that change as little as possible because nobody loves a tax hike if it affects them. They want this narrative that they're going to have to do it because of what the Tories have left them with. But I take some issue with this word, what we inherited. I mean, they asked to be in power, right? They campaigned really hard for it. They want to lead the country and they knew the broad fiscal reality. They knew what it looked like. They knew there were tough choices. They deliberately were vague about this during the election. And we know that, you know, they're having considerations around capital gains tax changes, inheritance tax changes, changes certain kinds of tax relief. Those will be laborers to own. That's not to say that the Tories handled the public finances all that well. They kept cutting tax and adding a lot of additional spending, getting really close to their fiscal limit. But labor knew all this. And so to say that it's a big surprise, I think, would ignore all of the public data they had long before the election. And, KG, obviously, this statement is going to be made in Parliament. We're expecting shortly a month long summer recess of about five weeks or so before Parliament comes back and they've got the party conferences. Over the next three months or so, do you expect Labor to kind of have the political oxygen, the ability, the space to make this argument repeated? And we can expect this to be a constant theme as the Tories obviously focus on their own leadership problems. I think we're already seeing them constantly refer to the bad inheritance. You know, you had Shabana Mahmud on prisons. The fact he's talking about the guilty men. Some of them are really hamming it up. I think, you know, to quite dramatic levels. But it's clearly something that they're quite comfortable talking about. And I personally think the Conservatives have a little bit of an open goal. Not so much is in right now. On Monday, there should be a new leader in place. But I do find it really hard to get my head around the idea of waiting until November for a new leader, which is after Rachel Reeves will do her budget. We're expecting on Monday the date of the new budget to be announced, which was likely to be in October. Now, there's suddenly a mass incentive for Labor to do lots of tricky decisions on nasty announcements between now and November, because I think particularly we could be proven wrong. In that last month of October to November, it could be when it's at its most vicious or, you know, it might be there's a clear winner by that point in the polls. So they can always act as the leaders of opposition before they get there. But on the Tory leadership, I think you either go so long that like there's a process. I don't quite get just tacking a month on from party conference on what it's going to achieve, other than a bit of a free pass when it comes to what we now expect to be. And perhaps we always expect it to be, to be honest, a budget which will contain revenue raises. Could it contain some spending cuts? You know, a budget that you do early on, but this is a narrative as a way to get some of the trickier decisions out early on. And the question is, will Labor be able to do all this stuff and blame the Tories? You do go back to the IFS and the fact that they said, you know, both parties are guilty of a conspiracy of silence. Repeatedly, they said that during the election campaign on their manifesto plans, yes, both parties, but always matter way more in relation to Labor because anyone could look at the polls. And so it was pretty impossible the Tories were going to have to deliver on their pledges. Then you have the smaller parties, which the IFS also pointed out, you know, don't help things because they know they're never going to be fully in government anytime soon. They can also have almost fantasy economics in terms of what they would do if they were to get there. And it does mean an election campaign. You can see why the party that expects to be in government is ruling things out and not getting into the state of the honest conversation with the public. We saw in 2017 on social care what happened when Theresa May tried to be honest with the public. It didn't end very well for her campaign. It was a turning point to the Tories losing their majority. And so I think politically, you can understand why Labor, you know, kept saying, Oh, well, we got to wait till we see inside. It's just that realistically, most of this stuff would have been known. And I think they knew that too. But, you know, if you were up against all these people promising x and y, are you really going to take the risk? Are you going to see if you can do this a different way? And then I suppose looking ahead to what that will mean for this Labor government. I mean, there are some things that Labor will need to, you know, we're hearing, for example, it could be a 20 billion pound black hole. Now, some of those things will be essential to the public services that most voters want to see improvements in. And also lots of supply side reform or reform begins with money, you know, on NHS and others. But also you have things like the two child benefit cap. Now, I think if you were just a Labor strategist simply looking at your swing voters, your electoral map, how policies poll the two child benefit cap isn't so unpopular in some of these swing labor voters. But in terms of the Labor parliamentary party, it's pretty unpopular. And therefore can, and as we saw the rebels this week, can they actually politically hold not removing the cap in the autumn? I think the jury is out on that, but that's three billion. So on top of this money, they have to find for some of the core things because both parties were guilty of conspiracy of silence. You've also got the internal dynamic bills on some issues, which Rachel Reese is also going to have to find the money for. And then you have public sector pay. So I think it is going to be bumpy. And I think probably the Tories have made it a bit easier for them to do it. I do think that's an important point. Labor wants to spend more money. And they want to spend it on the things that they plan to spend it on, not pledges that the Tories already made. And you have to find the cash for that. It's wrong to say there's no money left. You know, that note hasn't been left for political reasons, but also for good reasons. The UK is spending and taxing at record high levels. The problem is that they've over-promised on so very many things, including health care and the state pension and whatnot. So you either have to, as Katie said, have those difficult conversations, and that's a very tricky thing to do, or you have to keep trying to find more money. And I do think that's what Labor plans to do. And Kay, I wonder, in terms of where you think they might go. Now, the Tories, when you speak to Tories about their election campaign, most will not pretend that it was a huge success. But they will say there was some success in terms of boxing labor. And so you obviously had the triple tax lock in terms of no income tax rise, no national insurance tax rise, and no VAT rise. But then they also, on top of that, seem to rule out capital gains, some council tax rebanding. Do you think we're probably going to see assets as the main work thing where they were looking because of that triple mark? Well, we know from a leaked report from the Guardian, during the election campaign, not so far away from Election Day, that they did manage to get a document from Labor. That was considering possible tax hikes, and that involved capital gains tax and possible changes to inheritance tax. I mean, they have not been specific at all. This is the problem. They really haven't told us what they're going to target. Capital gains, I thought, was a really standout moment during the general election campaign. I remember in this guy news debates when Beth Rigby really put this to Key Astama, and he was like, it's not in the manifesto. And he said it in this, like, almost laughing, but very frustrated way. Like, why on earth do you think we would touch that? Now, it happened to not be in the manifesto. Nothing about it was in the manifesto. And now the indication is that it's a tax they could certainly be looking at. And I think this really does speak to how vague they decided to be during the general election, and they were very much trying to imply that tax hikes were not a top priority. But I also don't think anyone can be terribly surprised to discover that within weeks of a Labor government is the direction they're now pointing in. And that doesn't mean on Monday, Rachel Reeves is going to say what she's going to do in her first budget. But I think the indication is that it could certainly be coming. Okay, as a final question, overnight, we will saw the news that Barack Obama has finally backed Kamala Harris for the US presidential nomination for the Democratic Party. Tell us where we're at, in terms of the Kamala momentum, almost as we come to the end of a week after she took over from Biden, the mantle of becoming the party's candidate. I think Barack and Michelle Obama, where the final endorsement prize, practically all of the Democratic establishment, has got behind Kamala Harris. There's always been a sense with Obama's endorsements. He tends to do it on the later side. Perhaps that's completely intentional, especially within the party. You want to stagger these things somewhat. I suspect that part of it was a respect, but also potentially a tension with Joe and Jill Biden. The relationship between Barack Obama and Joe Biden has always been a bit tense, even when they were on the ticket together, light-hearted jokes being made back and forth that has some truth underneath it of frustration, perhaps that President Obama had with his vice president at times. Of course, in 2016, Biden really wanted a strong Barack Obama endorsement. The idea was that, actually, no, that was Hillary Clinton's moment. I think there's just always been a bit of tension there. Then, for the Obama's to play a part in trying to get Joe Biden to stand down, when we know that this is quite bitter for Joe Biden, he really would like to be standing for president again. If they had come out at the start of the week, hours after his campaign had been buried and say, "We do this whole endorsement for Kamala Harris." I think that could have come off the wrong way. The Democratic establishment has to get into gear. It's got 100 days. They've got a new candidate. They had to rally around her. They couldn't let the situation look even more messy than it absolutely already is, but there is also a thoughtfulness that has to be implied. I suspect, for a week or two more, we're going to continue to hear huge praises about Joe Biden and what an excellent president he was. I think it's Freddie Gray has mentioned on Coffee House, there is going to start to be a pivot because Joe Biden was pulling behind Donald Trump before that disastrous debate. Americans aren't happy with the economy under Joe Biden. Kamala Harris is going to have to try to make herself seem different to some extent from the way that her boss was handling things, and that might mean throwing Joe Biden under the bus. I suspect the Obamas were trying to play politics on both sides and have probably found the sweet spot. We should see. Thank you, Kate. Thank you, Katie. And thank you for listening to Coffee House shots. [Music]