In news that will be greeted with widespread relief, the Bank of England has cut interest rates for the first time since 2020 and more than doubled its growth forecast. The question now is whether the Labour Government will throw these positive economic developments into jeopardy by hiking taxes or borrowing to fund even higher public spending.
Already, Sir Keir Starmer has handed teachers and nurses unsustainable raises and offered junior doctors a 22 per cent pay bump. Such generosity appears to have emboldened the unions, with GPs backing unprecedented industrial action which could last for months even though, as The Telegraph has revealed, those same workers have received double the pay rises recommended by an official salary review board over the past eight years. What is more, the Government is quietly scrapping Tory plans to cut 60,000 Civil Service jobs, despite the headcount having soared to numbers not seen since before the financial crisis.
The picture emerging in these early weeks is not of a government committed to fiscal responsibility, but one that will squeeze the productive side of our economy in order to finance its own profligacy. Taxes, we are told, will “have to increase in the Budget”. The Chancellor has refused to rule out changing debt constraints that could allow for extra borrowing, when the UK’s inflation rate has only just returned to the Bank’s target.
However much Labour insists its hands are tied, the public may quickly begin to wonder whether recent announcements are political choices rather than economic imperatives. They may also harbour concerns that these measures are incompatible with the growth Sir Keir has repeatedly promised.