Rachel Reeves has approached this week’s budget like a reluctant swimmer inching into freezing water, trying to ease the unpleasantness by incremental exposure. The chancellor started paddling delicately around the problem of insufficient revenue at the end of the summer. First, she refused to stand by former insistence that tax rises in last year’s budget would be the last. “The world has changed,” she said.
Then, earlier this month, she took a bigger stride into the icy waves. There was a speech promising to “do what is necessary” to fund public services and keep borrowing costs down. Downing Street did not discourage speculation that this meant reneging on Labour’s 2024 manifesto promise not to raise income tax. Too deep! Within 10 days the Treasury had retracted the hint. The manifesto commitment still stood after all. As any cold-water swimmer knows, this aborted plunge and shivering retreat is the worst of all techniques. Nothing prolongs the pain like indecision.
It is hard to be decisive when choosing between degrees of self-inflicted harm. Breaking an unambiguous campaign pledge would have simplified Reeves’s fiscal challenge but shredded her remaining political authority. The alternative route, chosen after some vacillation, is to carry on raising many small taxes instead of one big one. The political cost might be the same, but it is spread out over a longer period, during which the chancellor can hope that something – a productivity and growth miracle – will turn up.
Hope has not been a great strategy for this government. At the core of Keir Starmer’s general election campaign was the vain hope of somehow satisfying voters’ demand for improved public services without reversing billions of pounds of Tory tax cuts. Once the revenue shortfall could no longer be denied, the Treasury hoped that well-off pensioners would surrender their winter fuel payments and that employers would swallow a national insurance hike without too much fuss. When forecasts of fiscal headroom came in low once again, Downing Street hoped Labour MPs would vote to make up the difference with welfare cuts.
At no point has either Starmer or Reeves successfully communicated a sense of national purpose to justify all this pain. Partly that is a problem of charisma. The prime minister and the chancellor are uncannily alike in their communicative deficiency, stilted and reticent in a way that pushes audiences away instead of drawing them in.
But their failure to imbue hard political choices with a sense of underlying moral mission has a deeper cause. It expresses the contradiction inherent in an election strategy that promised change through continuity. Alongside collusion in Conservative fiscal fantasies that meant also acquiescence to Boris Johnson’s Brexit settlement. The twin fears were that swing voters would freak out if they thought Reeves was a tax-and-spend fiend or Starmer might smuggle remainer convictions into Downing Street.
Just as political pressure to invest in public services has forced the Treasury to admit that taxes must rise, the economic imperative of boosting growth makes it ever harder to ignore the cost of detachment from the European single market.
And so begins another timorous creep down to the waterfront. The government spent a year splashing in the shallow end of realignment with the EU: proposals to end customs checks on agricultural goods; a youth mobility scheme. Ambition went a bit deeper on energy, defence and security cooperation, but nothing of substance has yet been signed.
In the absence of clear direction and impetus from No 10, talks are bogged down. The European Commission says single-market privileges are unlocked with contributions to the EU budget. UK ministers know that’s the deal. That doesn’t make them eager for a public row and Nigel Farage howling treason over whatever price ends up being paid.
There was once a lobby in Brussels for strategic generosity to Britain. Officials and some national leaders argued that the long-term cause of bolstering continental solidarity, given the military threat from Russia and the unreliability of Donald Trump’s US, justified exceptional concessions to a pro-European government in London. That case is weakened by fear that Starmer’s approach is just an interlude before Farage restores the old antagonism to No 10.
Economic reality has provoked some change in Labour’s tone on the European question. Reeves has started naming Brexit alongside the Covid pandemic as a cause of economic damage that the Treasury is toiling to repair. Other ministers have followed suit, although they carefully attribute the fault to “a bad Brexit deal” or “the way we left the EU”, never just “Brexit”. The problem is couched as negligent negotiation, not strategic miscalculation.
The difference matters. A bad deal might be replaced with a better one, which the prime minister can claim to be working on. What he never does is explain why Johnson’s deal was so bad; that its biggest flaws are the very things that its author called virtues; that it satisfied every demand of the radical leavers, making its failure a refutation of the whole edifice of Eurosceptic argument that had been assembled over decades.
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This is not just a grumble for sore losers mourning a fait accompli when Reform UK is leading opinion polls and Donald Trump is sitting in the White House. The legacy of Brexit can’t be measured only in declining trade volumes when so many of the politicians who campaigned for it gleefully align themselves with a US administration that despises the rule of law and is busy blowing up the foundations of the US’s constitutional republic.
The problem of Britain’s future relationship with the EU can’t be reduced to technical adjustments and border mechanisms when the whole geopolitical order is in tumultuous flux. Given everything that has happened since 2016, the year of the referendum and Trump’s first election victory, it feels legitimate still to be asking the big question: were Britain’s interests served by leaving the EU? And it is reasonable to note how the foreign state that saw the greatest benefit to itself in fracturing Europe’s democratic alliances, and that continues to machinate against western unity, is Vladimir Putin’s Russia.
These are cold, uncomfortable facts about Britain’s predicament in choppy international waters. It is not surprising that the prime minister and the chancellor flinch from the challenge. It would take them way out of their depth, into currents that they dare not swim against. So instead they continue nervously pacing the shore, hoping that maybe soon the tide will turn.
