What we got from Rachel Reeves today was, in economic terms, a major departure from economic policy as we’ve known it in this country for the past decade-and-a-half.
We got the single biggest increase in taxes in any fiscal event since 1993. The tax burden itself is now heading up to the highest level in history. We got a significant departure from the policies and promises laid out in the Labour manifesto.
Only a few months ago, Labour pledged not to make dramatic changes to Britain’s economic policy – no significant tax rises, no dramatic changes to public spending. But today the chancellor delivered significant changes.
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The old fiscal rules are out and now this government plans to borrow many billions of pounds more. It plans to increase investment considerably.
It plans to raise taxes on those with investments, on those with assets who could previously pass them on to their children (including business owners and farmers). In the meantime, it plans to spend considerably more on the health service and on public investment than previously slated.
It’s worth saying: while the government inherited the public finances in a worse condition than they looked before the election, even the Treasury’s “black hole” of £22bn cannot explain the dramatic change in economic policy here.
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Reeves refuses to rule out future tax hikes
It does not explain the dramatic increase in borrowing, spending and taxes – these are policy decisions by the current government. And, many would say, quite right too. Surveys suggest the British public support higher taxes, especially if they are used to improve the National Health Service.
Many think the UK should be spending more on its public services, even if that means we all have to contribute more (though they are generally less enthusiastic if asked whether they would be happy to pay higher taxes themselves). And there is little dispute that this country’s investment levels have been too low for too long and could afford to be higher.
However, that wasn’t the pitch Reeves and Keir Starmer made at the election. They promised, in their manifesto, only slight economic changes and only small increases in taxes. They promised to spend much of their time in office cleaning up the mess from the last government. Reeves promised to be the iron chancellor of fiscal discipline.
But this budget is considerably less disciplined with the public finances than expected. But what will worry the chancellor is that despite this extra largesse with both investment and current spending, the UK economy is not going gangbusters as a result.
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The Office for Budget Responsibility actually cut its forecasts for long term growth. That promise made by Starmer to achieve the highest economic growth in the G7 looks highly unlikely – even after the implementation of all these policies.
And in the hours after the speech, markets reacted in a way that will cause nerves in the Treasury. It’s nothing like the lurches in government debt yields we saw after Liz Truss’s mini budget in 2022. But the pound fell and the interest rates investors charge the UK government rose. That’s not something any chancellor would like to see after their first budget.
The next few days promise to be very interesting both in politics and in markets.
For centuries an odd tradition lay dormant in our democracy.
A number of nobleman have had the chance to sit in parliament, simply by birthright – 92 seats in the House of Lords are eligible to male heirs in specific families and 88 men have taken these seats and currently sit in the second chamber to vote on legislation.
It is not known exactly when this quirk in our parliamentary system started but Sir Keir Starmer‘s government is trying to end it.
The prime minister has said that the right to sit in the second chamber bestowed at birth is an “indefensible” principle and his government have started the process to end hereditary peers for good.
It will mean that those with hereditary peerages will have to be part of the process that gets them voted out of a job they had previously been entitled to for the rest of their life.
The last of the hereditaries
We meet the Earl of Devon who has one of the oldest hereditary peerages.
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He can trace his family title back to the Saxons, but the right to sit in the House of Lords came much later – he says granted in 1142 for supporting the first female sovereign, Empress Matilda.
He is the 38th Earl of Devon since then and the last to sit in the Lords as a hereditary.
His castle in Devon places him in touch with the community he represents – it is one of the main reasons he feels strongly that he adds value to parliament.
He argues he and his peers bring a certain life experience with them that the political appointees do not.
He says there is a greater regional representation within the UK and he has a deeper understanding of the historical constitutional workings of parliament that comes from passing knowledge from generation to generation.
“I certainly feel that the role that the hereditary peers play in the House of Lords is exemplary,” he says.
He greatly defends the idea of service that he and his peers strive for but he also says there is a social purpose and social value to the hereditary principle as the monarch is the epitome of it.
“I don’t think that Keir Starmer is a republican but it does beg the question of once the hereditaries go is the king next,” he says.
By contrast, Lord Strathclyde has one of the newest hereditary peerages.
He has not only participated fully as a member of the Lords but also served in previous Conservative governments in senior roles.
He believes this latest intervention by the government is a purely political move.
“I think the real reason why the government wants to get rid of them is because most of them are not members of the Labour Party,” he says.
“So it’s a smash and grab raid on the constitution. Get rid of your opponents and allow the prime minister to control who entered the House of Lords.
“I can guarantee you that once this bill is through and becomes law, there will be no further reform of the House of Lords no matter what ministers say.”
It is true that over half of hereditary peers are Conservatives and astonishingly few are Labour – there are only four.
But removing the hereditaries doesn’t change the composition of the Lords all that much.
The Lords is 70% men, which would only drop 3% once these peers are removed, and the percentage of Conservative peers overall in the house only drops by 2% if all the hereditaries leave overnight.
Broader Reform
Reform has been talked about since the 1700s when there was an attempt to cap the size of the swollen chamber now at more than 800 members.
But despite successive governments promising reform, the House has only got larger.
Hereditary peers have long maintained that once the government passes this first stage of reform they will be less motivated by other opportunities to modernise the second chamber.
In 1999, Blair culled the amount of hereditary peerages (having previously promised to get rid of them all).
While 650 departed, a deal was struck for 92 to remain with replacements when these peers died or retired and filled by a bizarre system of byelections, where the only eligible candidates were hereditary peers.
The current leader of the Lords, Baroness Smith, says the elections are a bizarre, almost shameful part of our democracy and compares them to the Dunny-on-the-Wold in Blackadder where there is only one eligible voter in the entire constituency.
While the government’s aim to abolish these peerages has finally stepped up a gear, it is also true that Labour has watered down promises on broader reform in the Lords.
Pre-election, it had floated the idea of abolishing the second chamber altogether.
In the manifesto the party modified that to instead reducing the scale of the Lords through a retirement age, but that was not in the King’s speech and no timeline for those objectives has been given by the government.
Baroness Smith insists these are still commitments and the government is currently looking at how to implement them, though it does seem to be moving at a much slower pace than this first stage of removing the hereditary peers who, it seems, will hang up their ancient robes for good at the end of this parliamentary session.