Four years of economic turmoil. High inflation, then high interest rates, then an (albeit mild) recession. A pre-election budget with some distinctly dodgy looking tax cuts. All leaving an election-winning, but nevertheless very unpopular, government with a big fiscal hole to fill. What does the chancellor do? Put up taxes, of course.
And indeed that is precisely what Norman Lamont did in March 1993. By a lot – by most measures, it was the largest tax-raising budget in at least the previous half century. It was followed by a decade and a half of macroeconomic stability and mostly steady growth, averaging almost 3% per year, a level recent chancellors could only dream of.
The context today is entirely different, but it illustrates both the scale of Rachel Reeves’s task and the fact that taking tough decisions can pay off. Lamont’s task was not just to fix the public finances, but to restore economic credibility after the fiasco of the UK’s exit from the exchange rate mechanism on Black Wednesday.
Reeves’s challenge is similarly both economic and political. We risk a cycle where low growth leads to less money for public services and higher taxes. That in turn leads to distrust in politicians and the democratic process itself, manifesting itself in general apathy, political fragmentation and, worse still, the growth of far-right ideologies that blame immigration for all of these problems, despite all the evidence to the contrary.
If the response from mainstream politicians is short-termism – for example, unrealistic promises not to put up taxes or to slash immigration, while ignoring fundamental long-term challenges such as the steady degradation of the public realm, ranging from roads to hospitals, the crisis in social care, lack of special needs provision in schools and the funding problems in higher........