Who will win the battle of the bean counters? In the pessimistic, fiscally conscientious corner we have Rishi Sunak, former chancellor and prime minister. His opponent, desperate to assume the mantle of economic credibility, is Labour’s Sir Keir Starmer. Both refuse to concede ground on Britain’s finances as they extol, with ironic immoderation, their enthusiasm for balancing Britain’s books.
The conflict entered a new, uncertain phase this week as the prime minister accepted recommendations from independent public sector pay bodies to boost wages — with hikes ranging from 5 per cent for the armed forces to 7 per cent for police. But just in case you thought the PM was veering into the realm of fiscal profligacy, Sunak carefully underlined the trade-offs involved in the government’s spending concession.
Reemphasising his famed fiscal restraint, the prime minister explained the pay hikes will not be funded through borrowing or tax hikes. Instead, existing budgets will be plundered for spare cash — with other changes on visas, the NHS surcharge and civil service recruitment making up the shortfall.
Never has a prime minister looked so contented announcing spending cuts. In his Summer stand-off versus Liz Truss, Sunak embraced bean-counting as essentially, unproblematically “Conservative”. Thursday’s announcement on public sector pay, therefore, was the Sunakian creed in its purest form. The PM couldn’t have been plainer: “Budgets are not infinite”.
But this pointedly Sunakian phrase, with its unapologetic emphasis on fiscal prudence, might equally have been uttered by Keir Starmer. It is, after all, no secret that the Labour leader has worked ruthlessly to pursue the incentives of post-Truss politics by reemphasising his party’s economic platform. Accepting the framing that Truss-like fiscal loosening makes markets quiver, Starmer signals that Labour is ready and willing to steal the mantle of economic responsibility from the Conservatives.
The diktats of Truss’ fiscal legacy hence loom large over Labour’s offering. In fact, sticking firmly to its platform of fiscal stolidity, it is far from a foregone conclusion that Labour will adopt the government’s position on pay review recommendations. Speaking two weeks ago on the topic, with government officials briefing that ministers could overrule the independent bodies, shadow chancellor Rachel Reeves positioned herself as some way short of raring to accept the circa 6 per cent pay recommendations. Labour would ultimately negotiate a “fair and affordable” deal with workers, she insisted.
Reeves knows the market meltdown triggered by Trussite fiscal loosening remains fresh in Britain’s collective memory, and that Trussonomics continues to spur the salience of spending commitments. In turn, the shadow chancellor has perfected the art of batting away accusations of fiscal profligacy. Ask her for her budget plans and, before Reeves explains Labour’s positive pitch, she turns first to her iron oaths.
Reeves’ reflex reach for her fiscal rules shows how intently Labour is engaged with the post-Truss political game. After the party so effectively criticised the former PM for her fiscal ill-discipline, building a vast electoral advantage in turn, key figures now want to signal Labour’s own economic credentials. It means while fiscal rules are nominally about facilitating good policymaking; for Labour, it is not Britain’s debt which is the target of Reeves’ oath-swearing, but the swing voter.
Still, in accepting the framing that further fiscal loosening will be impossible for the foreseeable future, Labour has ceded a significant amount of ground on policy. This essential Starmerite problem is compounded by the fact that, with Rishi Sunak at the helm, the post-Truss political landscape is not Labour’s alone to tyrannise.
Indeed, in the aftermath of the mini-budget, Sunak has at every stage sought to test Starmer’s fiscal discipline and tighten Labour’s policy straitjacket. The prime minister’s essential trick — in spite of his purported fiscal prudence — is to bring forward spending and push back austerity, all while staying loosely within his own self-imposed fiscal rules.
The Autumn Statement in November, for example, announced that fiscal policy will actually be slackened in the present parliament, with the Treasury’s measures beginning to bite only in 2024 when the UK may have sustained the worst of stagflation and/or booted the Conservatives out of office. Moreover, chancellor Jeremy Hunt also outlined a new fiscal rule in his address, namely “that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period”. Responding, Rachel Reeves did not object — she could not — lest she be labelled fiscally flippant.
And so Labour holds firm. In fact, Sir Keir and Reeves jointly undertake critical rearguard action to reemphasise their economic seriousness. The party’s £28 billion climate commitment was watered down along these lines.
What is more, Reeves’ most prominent fiscal rule to have debt falling as a share of national income within a first Labour term is actually more restrictive than Hunt’s rolling rule quoted above. (Hunt’s rolling target, as opposed to Reeves’ static target, requires that the government be on course to meet a rule a certain number of years ahead based on the latest forecasts, with this date rolling forwards as time moves on).
This point underlines a key ambition of Keir Starmer’s Labour party: to match and even outflank Rishi Sunak’s party on topics where a progressive party might reasonably be viewed as vulnerable. On this, fiscal policy is no different.
Of course, in prioritising prudence above all else, Labour becomes hostage to its own self-imposed stolidity. Starmer’s messaging on a rigid fiscal framework is so overbearing that it takes only one slip-up, one nonconformist breach to undermine all the party’s work post-Truss. And with Labour ever exposed to accusations of profligate tax and spend — those evil twins of left-wing mythology — the party is always expected to do more than the Conservatives to signal fidelity to a sound fiscal regime.
This iron rule of British politics also gives the Conservatives some wiggle room on economic policy. Because the Conservative party is less exposed to attacks on perceived reckless spending, Rishi Sunak knows he can game the odd fiscal oath, sneaking through spending commitments without overwhelming criticism.
It is a fact which explains the recent Spring Budget which contained a slew of measures focused on trying to boost UK economic growth. Among the giveaways were support for childcare costs, more generous tax treatment of business investment, changes to pension tax allowances to try to reduce incentives for early retirement and further encouragement for benefit claimants to move into work.
In sum, it left the chancellor with just £6.5bn of headroom against his main fiscal rule to ensure debt is falling long-term. Moreover, Hunt only secured the assent of the OBR on these measures with further pledges on future fiscal tightening — one of which is to raise petrol and diesel duties in line with inflation every year. But as the Financial Times points out:
In the Budget, Hunt [actually] followed the practice of every Conservative chancellor since 2011 by freezing fuel duties for 2023-24, saying that because inflation was high “now is not the right time to uprate fuel duty with inflation”
Budgets always contain a bit of sleight of hand — but Hunt’s was tricker than most. It also served to underline that Britain’s banal bipartisanship is as much about the Conservatives’ shifting left as it is about Labour moving right.
But Hunt’s Spring Budget aside, there are also serious questions about where Rishi Sunak is finding the money to fund his party’s new NHS workforce plan. Asked earlier this month on Sky News how the government would find the funding, health secretary Steve Barclay relayed it would be “through the Treasury”, adding only: “This is additional money, it will be announced in the usual way through fiscal events”. Host Sophy Ridge rightly retorted: “If Labour announced a policy of £2.4 billion without saying where that money was coming from you would be after them like a rocket”.
Conversely, the overriding message of Reeves’ fiscal rules is that the party will never set out spending or tax pledges without saying where every penny comes from. Shadow health spokesperson Wes Streeting has happily relayed that Labour’s own NHS workforce plan will be funded by abolishing the non-domicile tax status. Labour’s commitment to its economic oaths — conspicuously more ironclad than their Conservative counterparts’ — hence appears unwavering.
Limbering up to inherit an economy in dire straits, Keir Starmer can therefore console himself that, in the battle of the bean counters, it is he who is sticking more rigidly to his party’s self-imposed fiscal constraints.
But victory on this point means politically trying questions arise in other areas. Firstly, with the Conservatives openly plundering his policy laboratory on areas like childcare, how does the Labour leader differentiate his platform substantively from Rishi Sunak’s in a general election campaign?
But secondly and more profoundly, how does Labour work to reconcile its desire to implement change, summed up by its watered-down climate commitment, with its fiscal positioning, conditioned by post-Truss politics, Conservative “delay the pain” planning, a dire economic inheritance and fear of Tory attacks on “tax and spend”?
So Keir Starmer may be winning the battle of the bean counters. But the consequent question — one which will ultimately define Labour’s output through 2023 and beyond — is at what cost?
As things stand, Starmer’s political incentives point to a ruthless pursuit of caution in the lead-up to an election.
