Have Labour's First Two Budgets Been Good For Britain

00:00:00: Hello, we're Sandalwood.

00:00:01: And Sage!

00:00:02: We

00:00:02: are AI-generated characters who work with our creator Gareth to generate short serious punchy debates.

00:00:09: Debates that don't just help you figure out what you think but why YOU THINK IT?

00:00:15: So...what do we argue about this week?

00:00:28: Any government's economic policy has to be judged against the problems it inherits and sets out to solve.

00:00:34: I'm sure y'all agree, Sandal Wood that the incoming Labour government faced a growing and unsustainable gap between income, expenditure.

00:00:41: A widening gulf between rich & poor made worse by so-called cost of living crisis And an alarming erosion in quality public services.

00:00:51: On those against these priorities The first two budgets have been successful and on balance good for Britain.

00:00:59: I think we can agree that Starmer and Reeve's first two budgets have redistributed the pie.

00:01:07: Where I park company with you is this, increasing the size of the pie is an urgent almost existential challenge for the UK.

00:01:18: on That basis these to budgets look like yet another round of damaging tinkering and missed opportunity sadly consistent with a long succession of British governments.

00:01:32: Let's look at the facts.

00:01:34: First,

00:01:35: The government has tackled the unsustainable deficit it inherited from Rishi Sunak.

00:01:39: Across two budgets It created more than twenty billion pounds Of fiscal headroom against its own borrowing targets for this parliament.

00:01:48: Yes!

00:01:48: It took two attempts But the Chancellor didn't hesitate to return With a second budget when became necessary.

00:01:55: Any doubts about Britain's credibility with creditors, or the government's commitment to long-term solvency have largely been removed.

00:02:03: That looming crisis has been taken off the table.

00:02:07: Rachel Reeves achieved this by tightly controlling most public spending while significantly increasing tax revenues.

00:02:14: Crucially she did so in a way that protects lower income households placing the main burden on those better able.

00:02:23: In twenty-twenty four, she increased employers' national insurance by raising the rate and lowering the threshold generating billions from business payrolls.

00:02:33: She also raised capital gains tax increase stamp duty on second homes abolish non domicile tax status And applied VAT to private school fees.

00:02:44: at The same time measures such as increases in the minimum wage particularly for younger workers and cost of living support including a fuel duty freeze and lower energy costs, helped households under the greatest pressure.

00:02:58: Overall, government raised funds it needed without worsening already high levels of inequality.

00:03:06: The twenty-five budget sharpened focus on child poverty by abolishing the two-child limit on universal credit.

00:03:14: Political noise around measure has distracted from its scale.

00:03:18: The Institute for Fiscal Studies estimates it will lift around four hundred and fifty thousand children out of poverty by twenty-twenty nine to thirty.

00:03:28: These budgets have also been backed by policy reforms designed to increase housebuilding, strengthen tenants' rights two major drivers in inequality and cost living pressure especially for younger and lower income families.

00:03:44: Meanwhile the erosion public services and national infrastructure remains an urgent challenge.

00:03:50: Labour has committed to a one hundred billion pound plus capital investment programme, to modernise Britain's infrastructure and public services.

00:03:59: But isn't that all just pie in the sky?

00:04:02: Not at all!

00:04:03: The National Wealth Fund has already committed eight point four billion pounds of its twenty seven point eight billion pounds capital helping mobilise an estimated seventeen billion pounds in private investment.

00:04:16: The twenty-four budget also provided substantial day to day funding, particularly for the NHS and local government reversing austerity era cuts in key areas.

00:04:27: Some critics saw this as weakness opening the door to uncontrolled spending but with hindsight it looks more like effective prioritization within an overall disciplined framework.

00:04:38: of course economic growth will be vital in the medium term.

00:04:42: Since the election, UK GDP growth has averaged about one point five percent annually placing Britain roughly mid-table in the G seven after years of stagnation.

00:04:53: Growth remains a major challenge perhaps The biggest but it was not the most immediate crisis facing the new government.

00:05:00: What these two budgets have achieved is stability higher tax revenues and restored fiscal headroom provide the credibility And resources to rebuild public services invest in infrastructure and tackle the sharpest edges of inequality in poverty, while laying

00:05:38: Since two-thousand, the gap in per capita income between the United States and UK has widened from about forty percent to forty four percent.

00:05:51: Germany & Britain were broadly aligned in two thousand at roughly twenty seven thousand pounds per head.

00:05:59: By twenty twenty four, Germany had reached about sixty two thousand pounds while Britain lagged at fifty-two thousand pounds.

00:06:09: We have even been overtaken by France and Italy, countries often dismissed as underperformers.

00:06:19: At the same time, Britain has slipped down G seven league table While accumulating far more public and private debt And sustaining a higher tax burden.

00:06:32: The government now spends over one hundred billion pounds annually on debt interest.

00:06:40: Yet this borrowing and taxation have delivered no gains in relative prosperity or competitiveness, the UK has fallen from the global top ten into the low twenties on competitiveness rankings.

00:07:01: The government may recognise this is unsustainable, but it has yet to set out a convincing strategy or take meaningful steps to reverse.

00:07:15: Instead Rachel Reeves' first two budgets risk reinforcing these trends.

00:07:23: Dynamism entrepreneurship and investment are being squeezed by higher taxes on those who generate growth Capital gains, dividends inheritance pensions private schooling and property the foundations of wealth creation are all under greater pressure.

00:07:47: Meanwhile frozen income tax thresholds amount to a steady tax rise on earned progress.

00:07:57: The response in twenty-twenty five has been telling.

00:08:01: Investment and spending have been held back, and growth has stalled.

00:08:07: That's too pessimistic surely?

00:08:10: In the third-and fourth quarters GDP growth slowed to zero point one percent And consumer spending to zero .

00:08:20: two per cent.

00:08:22: There is every reason for concern.

00:08:26: These budgets reflect a belief that growth can be driven more effectively through public investment than private enterprise.

00:08:36: Over one hundred billion pounds of public investment is planned, with the OBR expecting it to crowd in private capital.

00:08:47: but the closest precedent HS-II hardly inspires confidence that such spending will deliver better outcomes.

00:08:57: There is also a broader lesson, decades of fiscal change from Gordon Brown onwards have barely shifted inequality.

00:09:09: the UK's post-tax genie coefficient was thirty four in two thousand and it about thirty five.

00:09:17: today Britain remains more unequal than France and Germany, And slightly less so then the United States.

00:09:29: What Britain ultimately needs is faster growth to generate broad prosperity and sufficient revenues To sustain strong public services... ...and over time The deeper reforms needed to tackle structural inequality.

00:09:49: If weak growth and declining competitiveness are the roots of Britain's economic difficulties, then the twenty-four and two thousand twenty five budgets risk making the problem worse.

00:10:03: By shifting incentives and resources away from most productive parts in economy towards public sector and those outside the labour market government risks producing slower and ultimately a shrinking economic pie, making prosperity and high-quality public services harder to sustain.

00:10:28: The incoming Labour government faced large structural deficit and crumbling public services that were undermining social cohesion.

00:10:34: by creating more than twenty billion pounds in fiscal headroom and stabilizing the deficit it has removed doubts about Britain's long term solvency.

00:10:43: I

00:10:46: agree they've redistributed the pie, but growing the pie is an existential challenge and on that front these budgets fall short.

00:10:58: Since two thousand – The income gap with the United States has widened Germany has pulled ahead And Taiwan has overtaken us With South Korea close behind.

00:11:11: These budgets look like more tinkering High taxes & redistribution rather than growth, that risks a smaller pie.

00:11:22: Growth depends on stability and functioning infrastructure.

00:11:26: Rachel Reeves tackled the deficit through disciplined spending and fair tax rises.

00:11:31: capital gains tax changes Fiat on private school fees an ending non-dom status Abolishing The Two Child Limit On Universal Credit will lift about four hundred fifty thousand children out of poverty according to the IFS.

00:11:45: That strengthens social stability and confidence.

00:11:48: But the tax burden is heading towards thirty-eight percent of GDP, a postwar high employer national insurance increases and frozen tax thresholds squeeze work and enterprise.

00:12:04: competitiveness has slipped to around twenty ninth by some measures And business investment Prosperity comes from innovation and dynamism.

00:12:18: These budgets are a missed opportunity.

00:12:22: Come on, Sandalwood!

00:12:24: The productive sector depends on healthy workers' and modern infrastructure.

00:12:28: That's why the government has committed to a one hundred billion pound capital programme.

00:12:33: The OBR expects public investment to crowd in private capital over time.

00:12:37: Growth is averaged only about one point five percent.

00:12:40: for years long before these budgets The government is fixing the foundations first.

00:12:46: Or managing decline?

00:12:48: By twenty-twenty four, Taiwan's income per head was about twenty five percent higher than Britain.

00:12:56: and South Korea has caught up.

00:12:59: They prioritised wealth creation.

00:13:02: We prioritise redistribution.

00:13:05: they also operate with far smaller tax takes Britain funds a comprehensive welfare state And this budget protects that social contract, lifting children out of poverty and reversing cuts to the NHS and local government.

00:13:19: And the twenty billion pounds a fiscal headroom restores credibility.

00:13:23: That's stability not recklessness.

00:13:26: Stability can look like stagnation.

00:13:30: Investment is already weak.

00:13:33: Why would capital flow here if taxes reach historic highs?

00:13:39: We're betting that one hundred billion pounds of public spending can substitute for private dynamism, despite cautionary examples like HS-II.

00:13:51: It's not substitution – Public investment can crowd in private capital and strict fiscal rules mean day to day spending must be tax funded.

00:14:01: The aim is a solvent fairer Britain with the foundations.

00:14:06: You see redistribution protecting a fixed pot.

00:14:11: I see policies that risk keeping it fixed or shrinking, while others accelerate ahead.

00:14:19: It seems we both agree.

00:14:20: the status quo is untenable Productivity flatlining Investment week Competitiveness slipping

00:14:27: Absolutely.

00:14:29: Underinvestment is Britain's chronic illness.

00:14:33: you think The cure Is public capital.

00:14:35: I think it's unleashing private capital.

00:14:40: The British Paradox, around twenty ninth in competitiveness yet still sixth in the Global Innovation Index.

00:14:53: I

00:15:04: believe the government has bought stability.

00:15:07: Now, Thanks for watching.

00:15:34: See you next time!