Some of the most infamous words in politics are ‘read my lips, no new taxes’ – uttered by George H.W. Bush as he accepted the nomination as the Republican candidate for the 1988 US presidential election. It helped him win that year but contributed to his downfall in 1992 as he failed to stick to his promise. We can argue how much of Bush’s defeat by Bill Clinton had to do with the broken tax promise and how much was to do with recession, but ‘read my lips, no new taxes’ should certainly have been on Rachel Reeves’s mind in recent months.
The tragedy of Starmer’s Labour is that it has attempted to emulate the success of Tony Blair’s New Labour, but without anything like the discipline
It is becoming clear that the £40 billion of tax rises in the Chancellor’s first Budget – themselves a breach of an electoral promise not to touch the rate of National Insurance, as she hiked employer contributions – are not going to be the end of it. And with it lies potential political calamity.
Reeves, in her spring statement in March, attempted to restore her famed fiscal headroom by cutting benefits. Yet since then the ceiling has fallen on her again, partly thanks to a lowered economic forecast as a result of Donald Trump’s trade war and partly as a result of Keir Starmer starting to row back on those benefit cuts. The Prime Minister has already announced a partial reinstatement of the Winter Fuel Payment and is believed to be prepared to do the same with the two-child benefit cap. Relaxing that was a policy he inherited when he became Labour leader but he subsequently dropped it.
The net result, according to the National Institute for Economic and Social Research, is that Reeves will be looking at having to raise between £10 and £30 billion worth of tax rises in this autumn’s Budget – and that, according to acting director Stephen Millard, will almost certainly mean that Reeves will be forced to raise one of the three big revenue-raisers: income tax, national insurance or VAT. And that, inevitably, will mean blatantly trashing the promises she repeatedly made during the general election campaign.
If she does, Reeves will almost certainly try to shift the blame onto Trump and the global economy. She will say that ‘Liberation Day’ was the unforeseen shock which has forced her into it. Except no one can claim that Trump’s tariffs was unforeseen – he advocated the policy throughout his election campaign, and had started a smaller-scale trade war during his first term. Moreover, Britain now has a trade deal with the US and Trump has relaxed his threats over tariffs, so blaming UK tax rises on him is going to look pretty pathetic.
If Reeves does go on to break her tax promise she is going to ensure that the next election will be fought on a basic question of trust. And Labour will have very little defence. It is going to be very hard to explain why they made a fundamental promise on tax and then failed to stick to it.
The tragedy of Starmer’s Labour is that it has attempted to emulate the success of Tony Blair’s New Labour, but without anything like the discipline. The promise not to raise income tax, NI or VAT was the same as that made by Blair and Brown before the 1997 general election, but the latter pair stuck to it. That required them firmly to reject the calls on their own side for a sharp increase in public spending – at least for their first term. Later on, the promise not to raise the three main taxes became a millstone as Brown kept on having to stretch his fiscal rules in order to borrow so that he could fund what, from 2002 onwards, became a spending splurge.
With so blatant a breach of a tax promise, Starmer may well struggle to survive a first term. Will the UK electorate prove to be as unforgiving as the US electorate in 1992? We will find out at some point over the next four years.
