The PM-in-waiting hasn’t yet announced his new Cabinet, but everybody seems to agree on one thing. Rachel Reeves won’t be chancellor afterwards. She’s tried to cling on, but it’s now clear that even she has accepted this uncomfortable truth. That’s unusual for her. Usually she ignores reality. She’s told us again and again that she’s “restored stability” to the UK economy, when in fact she’s only shoved us even further down the road to ruin.
Soon she’ll have plenty of spare time to lament her failures. And maybe have the odd snigger at the man who finished her political career. Because she’s sunk him before he’s even begun. Reeves likes to boast about her supposedly “iron-clad” fiscal rules, but in truth they’re like a rusty old bucket with a hole in the bottom. Under her plan, Britain is supposed to cover its day-to-day spending from tax revenues rather than borrowing by the end of this Parliament. There’s just one problem. It’s not going to happen.
Reeves is on course to borrowing another £140billion this year. That’s on top of the £132billion she borrowed last year, and £146billion the year before that. So she’s nowhere near balancing the books. But here’s the real killer. It’s the worse news Burnham could have possible got, as he looks to revive Labour’s fortunes by launching yet another unaffordable spending splurge.
Incredibly, Reeves always planned to leave the really painful decisions until the final two years of this Parliament. That’s when the serious fiscal tightening was supposed to happen. That meant spending cuts, tax rises or both, just as Burnham gears up to fight the next general election. No government wants to go to the country while hammering voters with austerity, let alone a Labour one. Yet that was her plan. Madness.
Reeves spent her first two years dodging hard choices on spending, presumably hoping that thanks to her brilliant financial skills, they’d magically disappear. Instead, they’ve only got worse. But it’s no longer her problem. Andy Burnham will inherit them. He has three choices, and they will all give him nightmares. Slash spending and Labour MPs revolt. Raise taxes again and voters revolt. Borrow more and the bond markets will call time.
And how can we borrow more when our debt mountain is now equivalent to 95% of GDP, which is the danger level. Burnham can’t ignore that, as Reeves did. The Office for Budget Responsibility has just warned that Britain’s public finances are on an “unsustainable” path as a result, and we’re on the road to a fiscal crisis. Now here’s the really frightening part.
The OBR budgetary watchdog says that simply stabilising debt at 95% of GDP would require tax rises or spending cuts worth a staggering £120billion. If Burnham somehow survives Reeves’s impossible final two years and wins that election, it becomes his problem. Although I doubt it will come to that. Thanks to the ticking time bomb Reeves just handed him, Burnham will be finished long before then.
His dreams of having 10 years in power will be blown apart, thanks to her dishonest fiscal plan. Reeves will be cheerfully putting her trotters up when her timebomb explodes. But it will blow Andy Burnham to pieces. Along with his chancellor, whichever unlucky soul he chooses. If it’s Ed Miliband the bomb might go off on day one, as the bond market goes into meltdown at the prospect. Rachel Reeves will be the only one laughing. The rest of us certainly won’t.