UK’s looming crisis

Chancellor Rachel Reeves’ tears in Parliament revealed greater difficulties for the Labour government than generally appreciated. Inevitably, they are leading to a sterling crisis.

Most of us understand the emotional impact when everything just gets too much. That was just such a moment when Rachel Reeves could not contain it during prime minister’s question time last week.

It matters not to us what the personal elements of her distress were, if any. But it is a racing certainty that the pressures of her responsibilities did get to her. And it is a reasonable supposition that the government being forced to backdown totally over welfare cost savings was the issue.

We know two things suggesting that her policy assumptions at the time of the last budget were all wrong. There is the widely reported flight abroad of high-income taxpayers which is knocking a devastating hole in tax receipts. And the economic consequences of her first budget adding to global trade uncertainties are doing further damage to revenue receipts. Those are not all of her errors by any means; almost everything she did has had negative impacts on the economy and government revenues. Her revenue assumptions in last autumn’s budget have been blown out of the water, as the autumn statement will reveal.

Negative revenue reports will have been piling up at the treasury, to the alarm of its permanent officials. At the time of the budget, they may have even warned Reeves of the likely consequences of raiding high-earners, non-domiciles, effectively closing down swathes of private schools, and imposing higher employment costs on employers leading to job and revenue losses. She is reaping what she has sown. You can imagine Reeves, head in hands thinking, “Oh my God — what have I done!” Hence the tears.

The impossibility of cutting welfare spending