Better services for nothing! That was pretty much Chancellor Rachel Reeves’s offer to voters during last year’s election campaign: that a Labour government would improve public services without raising taxes on working people.

Although in theory she’d pay for better services with faster economic growth — as if nobody else had ever come up with that idea before — in practice the pledge meant that taxes would have to go up for the rich and employers. Even with that, her imposition of higher National Insurance employer contributions raised the cost of creating jobs, and arguably hit workers.

Regardless, the gambit failed. Britain’s finances continue to deteriorate, with new estimates suggesting she now faces a black hole of as much as £50 billion in her autumn Budget. Even if that figure is on the high side, few doubt the accounts are straining.

That leaves the Chancellor facing an uncomfortable dilemma: break her pledge not to raise taxes further, or cut spending. With the Government committed to boosting the NHS and increasing defence funding — and with widespread public concern about the decline in Britain’s services, especially at the local level — spending cuts will be hard to implement. If anything, recent backbench rebellions over welfare restrictions suggest she has already tested her party’s tolerance for austerity to the limit.

Admittedly, Reeves would have a difficult task at the best of times. It’s often said that the British public wants European-level services for US-level taxes. Meanwhile, between a conservative tendency to depict taxes as theft of hard-earned money and a Left-wing fondness for taxing the rich to feed the poor, the median voter resists tax rises for anyone but the most wealthy. It’s thus hard to make a case for taxes as a reasonable price to pay for the services one gets in return.

It shouldn’t have to be this way. The Nordic model of using broad-based taxes to fund public services shows there is a social-democratic case to be made for building a welfare state that isn’t purely redistributive. There is scope for tax increases in Britain. Compared to its OECD peers, Britain lies in the mid-range of developed countries for the share of GDP which is consumed by taxes — higher than the US, but a good deal lower than Germany or France.

Meanwhile, it leans more heavily on corporate taxation than most of Scandinavia, raising questions as to whether taxing business is the best way to build a welfare state. Denmark, for instance, opts for broad-based income and consumption taxes to fund what is widely considered a model welfare state and excellent public services.

One would think the Labour Party, with its tradition of community and rejecting the more libertarian temptations of the British Right, would see the virtue in this. It should have been able to make a case for taxes as the price for the services that bind the country together, whether that be healthcare, social care or public broadcasting. But the current Labour leadership chose not to do so during the election campaign, allowing Tory tax pledges to instead set its agenda. It’s now paying the price for mimicking that rhetoric.

Having raised false hopes last year, Reeves can’t postpone making that case any longer. The public reaction may not be very welcoming. Given that this is a problem of her own making, she may find it difficult to muster much sympathy — though everyone sees she could use some.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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