“I’m afraid to tell you, there is no money.” When Liam Byrne wrote his infamous note to his successor as Chief Secretary to the Treasury in 2010, it was intended as a dollop of gallows humour. An attempt at a private joke, a wry reference to the huge damage caused by the global financial crisis, the letter very quickly became very public.
The Lib Dem-Tory coalition spun Bryne’s note as an admission of Labour’s spendthrift ways, claiming it proved the party couldn’t be trusted with taxpayers’ cash.
Well, after this week’s pre-election Budget and its confirmation of projected spending cuts, it now looks like the boot is on the other foot.
Whenever the next election is called, if current Chief Secretary to the Treasury Laura Trott were as candid as Byrne, she would have to leave a note to her successor stating: “I’m afraid to tell you, there is no money for public services.”
That’s certainly one of the big takeaways of Jeremy Hunt’s projections. His decision to freeze day to day public spending at just 1 per cent above inflation every year until 2029 carries dire implications for “unprotected” departments.
The Budget has unravelled faster than a snagged jumper, not least as pensioners have now worked out they face a £1,000 hit to their income, Hunt’s ambition to abolish National Insurance carried a hefty £45bn price tag, and defence spending also missed out.
Yet as Labour maintains a big lead in the polls, the onus on Rachel Reeves to explain her alternative plans gets even greater.
Having been ridiculed by Hunt only a few months ago as the “cut-and-paste Shadow Chancellor” (a reference to a plagiarism row over a book she wrote), Reeves could easily have thrown the jibe back at her opponent as he copied her plans to tax wealthy non-doms and to toughen the windfall tax on oil firms.
But the sheer tightness of the Government’s spending plans, and the deep cuts they entail from 2025 onwards, could leave many Labour supporters unhappy, if their own party simply Xeroxes the Tory proposals.
To avoid repeating the Conservatives’ cuts, Reeves and her team may lean into the idea of productivity savings in the public sector. Digitisation and AI could indeed yield savings that were previously a pipedream.
The Tories’ refusal to conduct a spending review before the election means Labour will be free to conduct one on its own terms. So that could include even more investment in chasing up tax avoidance or tax debts.
Reeves can credibly say she has to be able to look under the bonnet of the public finances first. Having been badly burned by the “Shadow Budget” of 1992 (the one that triggered Tory “tax bombshell” ads), the party is hardly going to stage a Shadow Spending Review in 2024.
More pressing for Reeves is the need to fill the hole caused by Hunt’s theft of her non-doms policy (worth about £2.1bn). The money was earmarked for cutting NHS backlogs, more dental appointments and breakfast clubs in all primary schools – all vital policies that will give an early signpost of the wider intent of a new Government. Change has to be credible and believable as well as sustainable – and so does its funding.
While Reeves is right to resist calls for her to conjure up the cash on the hoof, she shouldn’t wait until an autumn general election campaign either. An “unfunded” spending commitment can’t be left unfunded for seven months without endless questions about making your sums add up.
Given that Labour has deliberately limited its policy offers on extra spending, it has to show it can be bold again. Reeves’s team created the political weather when they first devised a credible, bulletproof non-doms policy, as well as a credible, bulletproof windfall tax on North Sea oil and gas.
As with VAT on private schools and extra charges for private equity firms, these policies are about values as much as finances – messaging to the voters what kind of priorities Labour believes in.
Maybe Reeves should consider a one-off windfall tax on the banks, who have been raking in billions in profits off the back of higher interest rates. During the early 1980s recession, even Margaret Thatcher slapped a 2.5 per cent levy on bank profits to raise cash.
The scale of the public sector cuts envisaged this week ought to sharpen everyone’s attention. With the NHS and schools ringfenced, other areas including justice and local government are in line for cuts of up to £20bn a year.
The Resolution Foundation thinktank calculates that is equivalent to about three-quarters of the cuts in the coalition years. In other words, this is Austerity 2.0. It’s worth remembering that dire public services are a cost of living issue too. Poor bus services mean pensioners entitled to a free travel pass end up forking out £10 just to go shopping. If the NHS is so broken that you’re forced to get a private hip operation to avoid years of living with chronic pain, you certainly end up paying thousands. That’s the kind of “double taxation” Sunak or Starmer should be abolishing.
There’s a bigger point however. When the (then) Tory chairman Greg Hands waved around Liam Bryne’s note during last year’s local elections, it made zero impact. The attack flopped because no one believes Reeves is a spendthrift. It’s also worth saying that Byrne’s note was a historic nod, however cackhanded, to similar notes left by Tory governments for Labour ones.
In 1929, Winston Churchill walked down the Treasury steps to tell his Labour successor there was “nothing in the till”. In 1964, outgoing Tory Chancellor Reggie Maudling wrote to the incoming James Callaghan “Good luck, old cock…sorry to leave it in such a mess.”
Keir Starmer has to deal with a similarly dire inheritance on the economy – while also carrying out his party’s other traditional role of rebuilding public services. It won’t be easy to do both, but it will be necessary.
Paul Waugh resigned as i’s chief political commentator in January to stand as the Labour candidate for Rochdale, a contest won by Azhar Ali
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