Kemi Badenoch was still wooing votes from Conservative members last Wednesday, the day the budget was delivered. Now leader of only 120 MPs, she can do little more than tut over the finance bill. Nevertheless, it’s the budget that sets out the great philosophical divide between Ms Badenoch and Sir Keir Starmer. It lies not in a particular policy or even a political commitment, but most acutely in a graph. It’s an exhibit that has received precious little discussion, yet it represents an ideological battleground that could help shape this parliament.
You can find the chart about halfway through the outlook issued by the Office for Budget Responsibility (OBR). Along its X axis are the world’s richest economies, ordered by how much they tax, which is a key measure of the size of their state. The countries that levy the least are Ireland, Chile, Switzerland and the US. At the other end are France, Norway, Austria and Finland – these are the biggest states, taking over 40% of GDP in tax.
What about the UK? Here’s where things get interesting. The OBR shows that before last week’s budget, the UK taxed about the same as a well-to-do eastern European country – indeed, it ranked right alongside Poland. But over the course of Wednesday afternoon, as Rachel Reeves spoke to the Commons, the state grew notably bigger. The £36.2bn a year extra in taxes – in cash terms – from next year onwards means that, by the end of this decade, the UK will be almost the same as a typical western European country, coming just behind the Netherlands. That shift represents a pivotal moment for British politics.
Some of Ms Badenoch’s most successful forerunners built their politics around the size of the state. Margaret Thatcher slashed income tax to the point where London was bracketed with Washington. Under Sir Keir, it will be more like Berlin. In more recent times, the Tories have focused on other issues, realising that tax revenues could yield an awful lot of vote-winning policies. It was no accident that in 2019 Boris Johnson promised 40 new hospitals and streets heaving with police officers – then won a whopping majority.
Over just seven years as an MP, Ms Badenoch has garnered attention for her cultural politics – on Britain’s colonial history and on multiculturalism – but her most consistent interests have been economic. She will surely talk a lot about how, on Treasury projections, Labour will soon be running a £1.5tn state. Already, she promises to “consider every aspect of what the state does”. Mel Stride, her shadow chancellor, is a small-state, low-tax champion.
How popular her platform will be depends on how well Labour can make the opposing case – that taxes are the price we pay for a civilised society and that taxes across the rich world are on the rise. Among the reasons voters dumped the Tories this summer was worry about the NHS and other public services. It’s up to Sir Keir to show that the extra taxes are yielding results. Newly minted ministers and their aides sometimes boast of how they are reasserting social democracy. German-style tax levels fit that picture, as will improved protections for workers. But this social democratic Britain looks very exposed trying to make a living outside the EU. The challenge for all politicians remains to frame a post-Brexit future for a small island in the North Sea whose oil ran out long ago.
