Labour must avoid killing off 'green shoots' of economic recovery with high business taxes

As inflation hits lowest level for more than three years, an interest rate cut that would boost investment looms

As the 1997 general election approached, the then Conservative Prime Minister John Major and his Cabinet colleagues were desperately hoping their efforts to bring inflation under control would reap economic rewards before voters went to the polls. The landslide for Tony Blair’s Labour government showed that, in the end, they came up short.

While somewhat overshadowed by an over-emphasis on immigration, cutting inflation was one of Rishi Sunak’s main priorities. It hit two per cent in June, but by then it was obvious the electorate had turned decisively against the Conservatives.

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£40bn in tax rises and spending cuts

Now it has been announced that inflation was 1.7 per cent in the year to September, the lowest level in more than three years, and well below the Bank of England’s two per cent target. This will have a number of different effects, not least on the level of the state pension and benefits.

It also paves the way for an interest rate cut, which is good news for mortgage-holders and for those looking to borrow money to invest. It is this latter effect that provides some hope of the “green shoots” of an economic recovery that Major’s Chancellor, Norman Lamont, once tried to convince the country were a reality.

Chancellor Rachel Reeves makes the keynote speech during the International Investment Summit in London on Monday (Picture: Jonathan Brady)Chancellor Rachel Reeves makes the keynote speech during the International Investment Summit in London on Monday (Picture: Jonathan Brady)
Chancellor Rachel Reeves makes the keynote speech during the International Investment Summit in London on Monday (Picture: Jonathan Brady) | PA

Unfortunately for him, those shoots failed to produce sufficiently impressive blossoms to sway public opinion, but that’s not to say things might be different this time. However, with Chancellor Rachel Reeves reportedly considering £40 billion of tax rises and spending cuts in this month’s Budget, there is a risk that any flowering of investor confidence will soon wither and die if she decides to hit business with excessively high taxes.

Tough calls

There is no doubt she faces some difficult choices in trying to balance the competing demands of government departments. She will also undoubtedly be wary of upsetting the markets, given the catastrophic Liz Truss-era mini-budget, a spectre that will hang over Chancellors for years to come.

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However, when making the toughest calls, she must remember that the country’s fortunes will be made or broken by the success or failure of private businesses. Over-burdening them with taxation risks ruining us all.

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