‘Incompetent and chaotic!’ Allister Heath and Jacob Rees-Mogg on next week’s Budget | The Daily T

Key Concepts

• Chaotic Budget Process: The current budget process is described as unprecedentedly disorganized and chaotic.
• Incompetent Governance: A recurring theme is the perceived incompetence of the current government in understanding politics, economics, and the impact of their words and policies.
• Deliberate Briefing vs. Leaks: Discussion on whether policy announcements are intentional leaks or strategic "trial balloons" to gauge public reaction.
• Economic Consequences of Policy: Emphasis on how policy announcements, even if later retracted, can have immediate negative economic impacts.
• Wealth Taxation (Mansion Tax): Criticism of a proposed "mansion tax" as a wealth tax, its potential negative consequences, and its similarity to hated taxes like inheritance tax.
• Capital Taxation: Argument that capital taxation is the worst form of taxation due to economic distortion and minimal revenue.
• Frozen Income Tax Thresholds: Concern over the "socialism by stealth" of freezing income tax thresholds, effectively increasing the tax burden on the middle class.
• State Spending vs. Economic Growth: The paradox of increasing state spending (45% of GDP) despite stagnant economic growth and the need for the state to do less.
• NHS and Welfare State Burden: The significant and growing cost of the NHS and welfare state as a major driver of increased taxation.
• Productivity Decline: A critical issue is the fall in public sector productivity, particularly in the NHS, leading to increased spending for diminished services.
• Inflation Management: Skepticism about the Bank of England's commitment to its 2% inflation target and the legacy of COVID-19 and the Ukraine shock.
• Monetary and Fiscal Policy Coordination: The argument for integrating monetary and fiscal policy, with some suggesting the abolition of the Bank of England.
• "Banana Republic" Risk: Alistair Heath's assessment of a 75% chance of the UK becoming a "banana republic" due to political and economic instability.
• Right-Wing Government Challenges: The immense task facing a potential right-wing government, including rebuilding the state machinery and recruiting qualified personnel.
• Populism and Counter-Elites: The need for populist movements to develop a "counter-elite" of skilled individuals to effectively govern.
• Uniting the Right: The necessity for the Conservative and Reform parties to unite to achieve a significant parliamentary majority and implement radical change.
• Immigration and Skills Shortages: The challenge of reducing immigration while managing potential skills shortages.
• Parliamentary Sovereignty: The potential for a future government to enact significant legislative change through parliamentary sovereignty, overriding existing acts.
• Labor Party Leadership: Speculation on potential future leaders of the Labour Party and the internal dynamics influencing these choices.
• Use of Language in Parliament: Debate on the appropriateness of using strong language in parliamentary debate to illustrate a point.

Chaotic Budget and Government Incompetence

Alistair Heath of the Telegraph describes the current budget process as the "most chaotic budget in history," noting its disorganization and how it has "unraveled several times before even being delivered." He attributes this to the government's "utter incompetence," stating they "can't do politics" and "don't understand that words matter, that threats matter, that floating policies actually matters." As an example, he highlights the potential for an "exit tax" on capital leaving the UK, which would likely cause businesses to withdraw capital immediately, regardless of whether the tax is eventually implemented.

Jacob Rees-Mogg agrees with Heath's analysis, suggesting that the policy announcements are not mere leaks but "deliberate briefing" by a government that believes it is being clever, making it "even more stupid." He points to the economic consequences of Rachel Reeves' past statements about the economy being a "disaster," which led to capital flight, a mistake he believes they are repeating. Both commentators emphasize that none of the current politicians have significant private sector experience, leading to a fundamental misunderstanding of how the economy functions.

The discussion also touches upon the role of the Treasury, with the question raised whether the Treasury itself is losing its grip on policy, or if Number 10, under Rishi Sunak, is exerting undue influence. It's suggested that this budget is not solely Rachel Reeves' but also a "Kharma budget," implying Sunak is taking responsibility.

Public Opinion and Proposed Policies

Yuggov findings reveal a stark public sentiment: 0% of Britons believe the economy is in a "very good state," and only 4% think it's in a "fairly good state." A significant 79% perceive the economy as being in a "bad way," with 77% believing the government is handling it poorly. While acknowledging that Rachel Reeves inherited a difficult situation (73%), a majority (64%) feel she has "made things even worse or nothing has really changed."

Of the 13 budget policies "pitch rolled," only four have majority public agreement, including taxes on gambling companies and VAT off energy bills.

Mansion Tax: A Wealth Tax in Disguise?

The proposed "mansion tax" is heavily criticized. Alistair Heath calls it a "catastrophe" and the "worst" tax, a "massive leap in the direction of a wealth tax." He argues that while it might be the "most modest version," it's an "abomination" to tax people on the value of their house annually, especially those with limited income living in expensive properties. The government's proposed solution of rolling up the liability until death or sale is seen as creating a "sellers tax," merging the hated council tax and inheritance tax into a "super hated tax." The short-term appeal of "class warfare" is acknowledged, but the long-term danger of changing the citizen-state relationship is highlighted.

Jacob Rees-Mogg concurs, labeling capital taxation of all kinds as the "worst form of taxation" due to "greatest economic distortion for the smallest amount of revenue." He explains that capital taxes alter investment behavior to minimize tax rather than maximize return, unlike employment or sales taxes. He predicts the mansion tax will "crash the property market" as elderly people sell up to avoid the tax, leading to high-value properties being removed from the market. The complexity of debt accumulation and potential insolvency is also raised, with the state potentially having to manage bankrupt estates.

Frozen Income Tax Thresholds: Socialism by Stealth

The prospect of frozen income tax thresholds is presented as a more insidious form of taxation than direct tax hikes. This is described as "socialism by stealth," effectively introducing a 40p flat tax on everyone without explicit announcement. The transcript notes that in the early '90s, only 4% of taxpayers paid the 40% rate, but by 2028-29, this could be nearly a quarter of taxpayers. This is deemed "desperately unfair" when welfare benefits are expected to rise with inflation, meaning low earners receive less while those on benefits receive more.

Economic Growth and State Spending

The discussion contrasts the past with the present, recalling Nigel Lawson's era where spending, taxes, and deficits were reduced. The current situation is characterized by stagnant economic growth (around 1-1.5% compared to 3-3.5% in the mid-90s) and a significant increase in state spending (45% of GDP, compared to a historical maximum of around 38%). This gap of 7% of GDP, or nearly £200 billion, is deemed unaffordable through taxation alone, necessitating a reduction in state activity.

The primary drivers for increased spending are identified as the "exploded" NHS and welfare state, including welfare for working-age individuals and state pensions. This has led to cuts in other areas like defense. The transcript also points to a decline in public sector productivity, with NHS productivity falling by 18% since 2019, meaning more money is spent for the same or worse services. This is contrasted with private sector productivity growth, which is being "hammered" by the government.

Inflation and Monetary Policy

Despite a slight decrease in overall inflation (from 3.8% to 3.6%), food inflation remains high at 4.9%, well above the Bank of England's 2% target. The speakers express a belief that inflation is no longer taken seriously. Gordon Brown's decision to make the Bank of England independent is seen as having devolved authority but not responsibility. The Bank of England is accused of not genuinely targeting 2% inflation for several years, with no apparent consequences for missing the target repeatedly.

The legacy of COVID-19 lockdowns and extensive monetary loosening, followed by the Ukraine shock, is cited as contributing factors. However, the core issue is a perceived loss of seriousness about inflation. A "complete reconstruction of our monetary institutions" and a clearer emphasis on targeting inflation are called for.

There's also a critique of how monetary and fiscal policy are run in isolation. It's argued that government policies, such as increases in National Insurance and the minimum wage, have been inflationary, forcing businesses to raise prices. The suggestion is made that monetary policy alone cannot fix inflation caused by fiscal policy, and that fiscal and monetary policy should ideally be run by the same entity, perhaps even leading to the abolition of the Bank of England. The Bank's actions, like selling bonds at huge losses, are seen as negatively impacting fiscal policy.

The "Banana Republic" Risk and Right-Wing Governance

Alistair Heath quantifies the risk of the UK becoming a "banana republic" at 75%, based on a "back of the envelope calculation." This involves a 50% chance of a right-wing government being elected and then only a 50% chance of that government succeeding due to the immense task of retooling the state machinery, launching a "hostile takeover biz of the civil service," and appointing new personnel. He warns against complacency among right-wing voters, as a coalition of the left (Labour, Lib Dems, Greens, SNP, etc.) could easily form a government with a much smaller majority.

Jacob Rees-Mogg believes a right-wing government could win but emphasizes the need for the Conservative and Reform parties to "work together." He suggests that Nigel Farage needs to emulate Trump's success by being fully prepared with a legislative program on "day one," focusing on constitutional change and parliamentary sovereignty to regain powers from quangos and override certain acts.

Both commentators stress the critical need for a "counter-elite" – highly skilled and knowledgeable individuals – to lead any successful right-wing government. They highlight the failure of past attempts to bring in new talent without adequate preparation, leading to their quick destruction. The challenge of recruiting hundreds of qualified MPs, peers, regulators, and counselors is immense.

The discussion also touches on immigration, drawing a parallel between the left's approach to net zero and the right's approach to immigration. While reducing immigration is a goal, the short-term reality of skills shortages must be managed through planning and phasing, not an immediate "turn off the immigration tab."

The Future of the Labour Party and Political Discourse

Speculation arises about Rachel Reeves' future as Chancellor, with Alistair Heath stating a 100% chance of her departure, though the timing is uncertain and depends on Keir Starmer's fate. She is described as a "fig leaf chancellor in name only," with Downing Street holding more sway.

Regarding potential Labour leaders, Shabbana Mahmood is admired for her courage and views on immigration, but it's deemed unlikely she would become leader due to the Labour membership's broader open-border stance. Ed Miliband is considered a more probable successor, given his support base within the party membership.

The debate then shifts to the use of language in Parliament, specifically Shabbana Mahmood's use of strong language to describe the abuse she receives. While acknowledging that swearing is generally a sign of "stupidity," both speakers concede that in certain circumstances, to illustrate a powerful point, such language can be legitimate and effective, even in the House of Commons. Jacob Rees-Mogg recounts a personal anecdote of swearing after knocking over his tea, contrasting it with the more measured "bother."

Conclusion and Optimism

Despite the grim assessment of the current political and economic landscape, there's a glimmer of optimism. Jacob Rees-Mogg believes the British people are "ready for change" and that tough times, like the predicted economic downturn, can be a catalyst for significant reform, drawing a parallel to 1979. He emphasizes the need for the right to unite, suggesting that a united front could achieve a substantial majority and deliver "great things." The growing influence of the far left and the Green Party is also noted as a factor that could galvanize the right.

The core message is that while the challenges are immense, particularly for a right-wing government aiming for radical change, proper planning, the recruitment of a skilled counter-elite, and unity are essential for success. The transcript concludes with a call to action for the right to prepare and unite, recognizing the potential for significant transformation if these conditions are met.