Why Rachel Reeves quotes Thatcher

Before the general election, the Labor Party made its core mission clear: higher economic growth. The problem with the party is how little there is of it. GDP grew by just 0.1 percent in the third quarter of 2024 (Labour’s first) while business activity contracted for the first time in more than a year.

There’s more bad news for the Government ahead of today’s Confederation of British Industry (CBI) conference: a survey by a business group found half of firms are looking to cut jobs to meet the Budget, and two-thirds believe it will harm UK investment . . “Tax rises like this should never again be simply a cripple for business,” CBI chief executive Raine Newton-Smith will warn of an increase in employers’ national insurance. “This is a recipe for unintended consequences.”

Rachel Reeves will have the opportunity to respond when she appears on the same conference today at 4:10 p.m. “I heard a lot of responses to the government’s first budget, but I didn’t hear any alternatives,” she will say. “We asked businesses and the wealthiest people to contribute more. I know this choice will have an impact. But I believe this is the right choice for our country: an investment to rebuild the NHS and rebuild Britain.”

If this argument sounds familiar, that’s because it is. “I trust that people will recognize that there is no real alternative,” Margaret Thatcher said at the Conservative Women’s Conference in 1980, at the start of her monetarist experiment (which saw VAT rise from 8 percent to 15 percent and interest rates rise from 12 percent). percent to 17 percent). percent). It is also a defense that George Osborne has regularly used in his austerity agenda since 2010.

Reeves’ decision to revive the line reflects similar political goals. First, it is an attempt to portray the opposition as frivolous and untrustworthy. Cabinet ministers were delighted when Kemi Badenoch recently said she was “not opposed” to Labour’s public spending plans without backing a £40bn tax rise to pay for them. This has allowed the government to revive memories of the Liz Truss voodoo economy (which neither business nor voters want to return to).

Second, Reeves sets the stage for the argument that helped Thatcher and David Cameron win re-election: it hurts, but it worked. “You’ll have to do the hardest things at the beginning of parliament so you can reap the rewards at the end,” a Labor aide told me, calling Reeves’ budget an antidote to the “futile, short-term” approach being taken. recent tax cuts by the Tory administration.

But can Labor enjoy the recovery they hope for? This will depend not only on internal events, but also on external events, if not more. The Office for Budget Responsibility’s forecasts for future years look grim (Reeves will repeat today that she is “not satisfied” with the economy’s performance). However, they would look even bleaker if the impact of Donald Trump’s planned tariffs were taken into account. The UK, as an open economy, is particularly vulnerable (the National Institute of Economic and Social Research predicts GDP will be 0.7 points lower next year). two years).

This is why preventing such an outcome will be a priority for the government (David Lammy’s kind words about Trump in my recent interview reflect both economics and geopolitics). If it fails, the budget crisis already ahead (spending on vulnerable departments is set to fall by 1.1 percent in real terms after 2025-26) will be much worse.

“I don’t plan on having another budget like this,” Reeves will say today. “I wiped the slate completely clean.” For some in the Labor Party, this feels like a hostage to fate. If a Trump presidency turns out to be as costly as feared, this year’s budget will not be the end of difficult decisions, but only the beginning.

This article first appeared in the Morning Call newsletter; Get it every morning by subscribing to Substack here.

(See also: Ireland’s Liberal Center is Hiding Something Darker)