The Budget psychodrama is at its worst ever

Mouthy Money editor Edmund Greaves looks at how speculation around the Budget is reaching “psychodramatic” proportions.

It’s pretty hard to avoid Budget speculation at the moment. It is a momentous occasion we’re told.

This is hard to argue. It’s a new government with difficult choices to make, and a wafer-thin balancing act to carry out. I don’t envy Rachel Reeves her job.

It is true to say that this isn’t unusual. The Budget is a significant moment for any Government and engenders enormous amounts of speculation from the media, and any and every vested interest you can think of.

But the way in which wild speculation about what is and isn’t coming has now reached feverish, and potentially dangerous levels – especially if people start making dramatic decisions with their finances as a result.

Labour backs against the wall

Labour has backed itself into a bit of a corner over tax rises, with the three main revenue earners (income tax, national insurance and VAT) all ruled out for rises in the party’s manifesto.

This leaves Rachel Reeves with the option to make a series of esoteric tax changes that either need quite a lot of explaining or are downright Kafkaesque.

This has led to weeks on weeks of speculation and policy idea floating in the media, which is at best enormously unhelpful, and at worst downright destructive when it causes people to start making rash decisions.

When you target the weird taxes, you get the weird outcomes. The ‘window tax’ is the most famous historic example of this.

Part of the issue with how the psychodrama mounts comes down to the way in which our parliamentary democracy works.

The Budget is an historic tradition, with the first mention of the term dating back to 1733.  It is presented by the Chancellor to Parliament. This in and of itself is ‘normal’ in the sense of a democratic process where legislation is presented to MPs who then debate on it etc.

However, setting a date long in advance creates a whole cycle of speculation in the run up, and indeed a whole round of unpicking, and ultimately trashing, of decisions once they’re announced.

But don’t bother surprising everyone with a Budget either, because you’ll get what happened to Liz Truss and Kwasi Kwarteng – absolute paroxysms that lead to total meltdown of nearly the whole thing.

A voracious 24/7 live and digital news media means every aspect of it is now painstakingly analysed, criticised and commented on. Pundits have very little at stake personally, but create enough of a stink and you’ll kill an idea – no matter if it was a good one or not.

Every idea is shouted at by one group or another with: “You can’t do that! You’ll make x group worse off!” or “You’ll push Y group to flee the country” and “how can you target Z group don’t you know”…etc etc.

It leaves the Government reeling, policies disappearing as fast as they arrived, and all-round uncertainty. With a change of government for the first time since 2010, it feels even more psychodramatic than usual.

Anecdotally (mostly emanating from the advice sector) people have already begun making changes to their finances to try and swerve tax changes that haven’t even be confirmed as happening yet.

More from Edmund Greaves

Ministry of Tough Choices

Fiscal discourse is at all-time highs of pearl-clutching. This is because it is so easy to take an idea one suggested and profess utter dismay at it.

The only time in my career I can remember it being this toxic was the bad days of Brexit, although as a financial journalist I escaped some of the worst of it compared to those on the politics beat.

And to be sure, some of the ideas I’ve seen have…at the very least…raised my eyebrows.

But we’re in an era of reaping, not sowing. Debt is at painful highs. People have had their living standards crushed. Wealth inequality is everywhere. Enormous inefficiencies, unintended consequences and downright perversities pervade all the way through how taxes work in our country.

Unless we really grasp the nettle and make hard choices, we’re going to create an even more febrile situation next time, and the next time, until eventually our politics will reach a breaking point.

We have real-world examples of how this plays out. Look to the example of Argentina, which got itself into such a big economic pickle it went for broke and elected a Libertarian who sits totally outside the old Peronista consensus – the literal chainsaw wielding new President, Javier Milei.

A man who has named his dogs after free market economists, and has a self-professed desire to root out all the ‘parasites’ of the state. His rhetoric is as shocking as it is popular, precisely because the Argentine state had ceased to function, or control the economy (mainly with runaway inflation) in any meaningful sense.

In fairness to Labour and Reeves, they have already opted to make the winter fuel payment for pensioners means tested – a policy which has been deemed politically toxic, despite the fact pensioners are more likely to be millionaires than live in poverty. Perhaps Labour has indeed decided to launch a Ministry of Tough Choices and stick with it.

Unless we deal with the those tough choices now, and the media howling that this evinces, then we’ll just get our own Milei ultimately instead. That may or may not be a bad thing, but it will certainly not decrease the psychodrama, which I know we’re all quite done with already thank you very much.

Photo credits:  HM Treasury Flickr