Labour and Tories fall prey to optimism on tax and spend

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Good morning. The smartest thing that Jeremy Hunt did in his last Budget, politically speaking, was to implement Labour’s plans to reform the “non-dom” tax regime.

Labour’s non-dom policy did an awful lot of work for the party. The pledge to scrap the system offered it a line in interviews about how it would pay for its various extra goodies for public services, and was also a handy way to remind voters about Rishi Sunak and his wife Akshata Murty, who previously claimed non-dom status.

In taking this policy off the table, Hunt gave Labour a problem of its own, because it left it short on explanations for how it will keep its own spending pledges. Today Rachel Reeves sets out how Labour will respond — some thoughts on the politics of that below.

Code red

Labour will close loopholes and crack down on tax avoidance to raise more money for public services. If that sentence is giving you déjà vu, that’s because “closing loopholes and cracking down on tax avoidance” is essentially the go-to funding mechanism for an opposition party that doesn’t want to touch controversial tax rises. (Alongside “the proceeds of growth” or “cutting red tape”.)

But there have been efforts to close loopholes and increase enforcement as recently as Jeremy Hunt’s Budget this year, so I am dubious that Labour is going to raise the amounts it needs via this route.

Keir Starmer’s team is helped by the silliest thing Hunt did in his Budget: cutting national insurance and meeting his fiscal rules only by pencilling in his own implausibly sharp cuts to public expenditure.

In order to keep to his fiscal rules, the Conservatives have set out plans that involve sharp reductions in departmental spending outside a handful of protected departments. Given the party’s struggles to reduce spending in recent years, there is little reason to believe these promises can be kept.

Both the Conservatives and the Labour party are able to get away with frankly optimistic claims about how much they can raise through cutting spending or increasing taxes on the rich — via blocking loopholes or other electorally popular means — because neither party can plausibly say the other side’s figures are any less optimistic than theirs.

Given the state of the polls and the damage that the failure of Liz Truss’s premiership did to the Conservative party’s ratings on economic competence, that all very much advantages the Labour party.

Now try this

This week, I mostly listened to Andre Previn and the LSO’s version of Swan Lake while writing my column. It’s a wonderful recording and a small word of praise for just how beautiful the physical box set is.

Every piece of music recommended in this newsletter can be found in the Inside Politics Spotify playlist.

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