Former chancellor Lord Ken Clarke has warned Rachel Reeves’ “disastrous bad practice” of allowing her budget to be briefed before it is delivered has “produced an air of gloom over the economy”.
The respected former chancellor has also called on Ms Reeves to reconsider her decision not to increase income tax and instead raise it by 2p.
Lord Clarke helped turn around the UK economy after black Wednesday in 1992 which forced the pound out of the European Exchange Rate Mechanism. He offered his advice to the current chancellor in an interview on Radio 4’s PM programme on Monday (17 November), as she faces a potential economic crisis.
Talking about the multiple briefings on potential new taxes, a plan to increase income tax, and then a decision to cancel that increase, he said: “In my day we had something which we gave a strange name – budget purdah – and for a period of a month or two before a budget, for any minister, political adviser, civil servant, to breathe a word about what might be in the budget was a kind of hanging offence. It would certainly mean the instant end of any career.”
He later continued: “Parliament is held in contempt by successive governments who always announce things to the newspapers outside first, trail them first before they make a statement. Even more importantly, it upsets the markets, it affects confidence, people start trying to make money on the trailed announcements of what’s going to be done.”
He added: “It has produced an air of gloom over the whole economy as all sorts of things get trailed.”
Ms Reeves is now looking at a range of wealth taxes including a mansion tax on homes worth £2 million or more and a gambling tax or bank levy to plug a gap in her spending plans now believed to be £20bn.
Asked what he would be doing in this budget, Lord Clarke said: “Bracing myself for an extremely unpopular budget, concentrating on getting out of an acute economic crisis that we are in, particularly tackling the fantastic burden of debt that this government inherited but which it added to in its first budget.”
“That means put your tin hat on, put up taxes, cut public spending, brace yourself for the reaction, explain clearly that you are doing it in order to get back towards, in two or three years’ time we hope, growth with low inflation and a better prospect for families whose living standards are declining at the moment,” Lord Clarke said.
Asked which tax he would increase, Lord Clarke said: “I am very reluctant to raise income tax, it had been terribly high in my time, I cut them. But now I think at least a penny, perhaps tuppence, on income tax. It’s the fairest, basic tax. I’m torn between that and VAT.”
