Rachel Reeves's budget clobbers the very people she needs to invest in Britain

British Chancellor Rachel Reeves cut a surprisingly commanding figure as she delivered her first budget.

There we were, believing she would be delivering bad news and possibly cowering as a result, petrified of the resultant storm. Instead, she stood tall, proud and defiant.

In this, Reeves was aided by two factors. First, she knew that what she was announcing was not going to be as terrible as we had been led to believe. Labour’s spin doctors had done a fine job preparing the ground so that when the blows came, they were softer. Second, she had the Office for Budget Responsibility, or OBR, at her back.

It is doubtless lost on the Tories now that the independent overseer of Britain’s public finances was their own creation. Back in 2010, George Osborne formed the OBR to provide an unimpeachable verdict on the government’s economic forecasting. This, after years of Osborne, as shadow chancellor, criticising the last Labour administration. Once in power, he launched the official checking service.

Oh, how the present Tories must now wish he had not bothered. Buoyed by analysis from the OBR showing that Reeves and her colleagues were indeed correct in finding a hole in the previous Tory government’s accounts, she was able to go on the offensive.

Britain's Labour government unveils its first budget – in pictures

The headline figure in Britain's first budget by a female chancellor was that Reeves was raising taxes by £40 billion. That seemed a lot, but then it transpired that £25 billion of that total was derived from increases to employers’ national insurance, or NI. The ordinary person could breathe easily.

This was one of the themes in her statement. Hit the rich, with changes to NI, tweaks to capital gains and inheritance taxes, VAT on private schools, an end to non-doms, higher taxes on profits earned by carried interest, a favourite of the private equity community, and increased stamp duty on second homes. Benefit the less well-off with measures such as rises in the National Living Wage, removing the freeze on income tax thresholds, and boosting the state pension. To ram home her priorities, she was even lopping 1p off the cost of a pint of draught beer. Cheers all round ma’am, especially from the packed benches behind her and doubtless in the nation’s pubs.

Her other messages centred on responsible economic management and growth. On the first, she did a good job of balancing the books, with the OBR on call when required. But, on the latter, Reeves was hazy.

Perhaps understandably so, since growth relies on confidence, on certainty. It is dependent on those very people she had spent most of an hour and 20 minutes clobbering still dipping into their pockets and believing in her and her party’s vision, and investing.

Repeatedly, she used the word “choice”. She made it all right and it was very much for the ordinary working person and against the wealthy. But what she was missing was that the country’s richest are also those very same bosses and investors she is so intent on punishing.

Labour wants their money. Reeves referred to Prime Minister Keir Starmer’s recent Investment Summit which apparently raised £63 billion for UK ventures in pledges from multinational chieftains across different sectors. How much of that tally is genuinely new and how much would have been announced anyway is not clear, but it is a large figure and way ahead of the Rishi Sunak equivalent in 2023 of £29.5 billion.

No sooner, though, does Labour grab that extra cash than it turns round and whacks those investing, slapping companies with higher NI and increased minimum wages for the lowest-paid staff. Their leaders, too, must fork out personally more money for schooling, owning second homes and so on. They may have a family business and dream, one day, of selling to private equity. If those investing happen to be non-doms, claiming preferential tax status, they are not going to be for much longer.

Wealth creation

It's as if Reeves, an economist by training as she reminded us, has not made the connection between wealth and wealth creation.

Britain desperately needs entrepreneurs, innovators, wizards in tech, software, AI, bioscience, healthcare, renewables, financial services and all the other fast-developing sectors, to put their faith in the country, in its government, and to set up and provide new jobs. It wants foreigners with ideas and purpose to back Britain. But those selfsame folk may also want to claim non-dom treatment; they might wish to send their children to the most famous schools; they could want boltholes in the countryside. Yes, says Reeves, we have hurt you there, but believe us when we also say we want you.

To which the riposte is: “Really?” Because not only has Labour set out its stall in this budget but it is difficult to see how this is going to change over future years. There is ideology at work here, and it belongs to a party in hock to the trade unions. We can expect more of the same from Reeves and Co.

Time will tell

This a very different Labour from the one that also enjoyed a landslide and went on to rule under Tony Blair then Gordon Brown from 1997 to 2010. Blair’s embracing of non-doms and his ally Peter Mandelson’s declaration that New Labour, as it was then, was “intensely relaxed about people getting filthy rich” seem far away.

The world flocked to Britain. The City was the planet’s top financial centre, London was the capital of Europe, the UK was a magnet for international businesses and overseas investment. They brought funding and employment.

When he was Mayor of London, Boris Johnson liked to begin speeches by listing the types relocating to his patch. Oligarchs, Arabs, Chinese, Indians, the French, he would say, adding that if London was in France he would be heading the fourth-biggest city, so many French had chosen to settle here.

Then came Brexit and the botched aftermath – inexplicably at Johnson’s doing, followed by Ukraine which put paid to Russians, and increasingly protectionist regimes in China and India. Now this.

The phrase often trotted out by politicians such as Reeves and Starmer is that “Britain is very much open for business”. There is another saying, that is much older: cutting your nose off to spite your face. As to which is appropriate, only time will tell.