Rachel Reeves is wrong to blame Brexit for her economic woes. They are all of her own making. She spends, taxes and borrows too much. Higher taxes drive up prices, undermine confidence and destroy jobs. They become self-defeating, leaving her short of money and borrowing to excess. She is in danger of entering a doom loop. Putting up taxes again would drive prices up and jobs and investment down. She could end up borrowing more with higher prices and a stalled economy. A groundhog budget like last year would be a disaster.
She wants us to believe our prices are going up too much thanks to Brexit. Funny that, five years after Brexit when they stayed low for the first two years after we left. She needs to remember her own exchange of letters with the Governor of the Bank of England. They agreed this September that inflation was too high largely thanks to recent government actions.
The government put up water bills a lot to increase spending on new and bigger pipes. They increased the managed price of energy.
Mr Miliband’s passion for more renewables and high fossil fuel taxes gives us the dearest energy of the advanced countries. The Chancellor’s increases in National Insurance and business taxes forced shops, restaurants and hotels amongst others to put up prices to pay the tax.
The plastics tax increased the costs of food packaging. Most council tax bills went up by 5%, well above inflation.
Rachel Reeves promised in her letter to get government to cost us less, recognising it had pushed up inflation through a series of decisions that hit consumers. She has said this next budget needs to help get prices down, but will it?
She has to get so much better at controlling the surging costs of government. She needs to stop sending us the bill for public sector excess costs. Meanwhile she racks up huge losses on bond sales agreed with the Bank of England and is apparently helpless as the cost of illegal migration spins out of control.
The Chancellor also blames Brexit for poor productivity. She is being told she needs to put taxes up by the OBR because we are producing less per person than they thought. Lower productivity means more cost to produce goods and services and less tax revenue from selling the lower output.
She wrongly thinks if we were back in the EU our productivity growth would miraculously rise through trade competition. Funny it didn’t do that when we were in. Growth in productivity fell over our period of membership.
Worse still for her argument, the big collapse in productivity has been in the public sector. This is all domestic activity completely unrelated to trade with the EU. Private sector productivity growth has reduced as the government’s high energy prices close down what were highly productive factories making energy intensive products, and accelerate closure of the very productive oil and gas industry.
Closer links with the EU will make both problems worse. The EU wants to stop us buying cheaper food imports from the rest of the world and buy more expensive EU food instead. Their carbon border tax will make things dearer, and their carbon tax helps close UK factories. We did not get rich like the US by being in the EU. The EU average GDP per head is just half the US level. Closer links to the EU would make us worse off.
Rachel Reeves should be celebrating Brexit. Her black hole would be £25 bn bigger if we were still in, paying membership fees and sending them our customs receipts and plastic tax money. Who would want to pay all the extra tax it would cost us to rejoin?