Tax driver: Labour’s budget

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The Economist.

Hello and welcome to the intelligence from the Economist. I'm Rosie Blore.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

Recovery efforts are still underway in North Carolina, which was ravaged last month by Hurricane Alen. The storm has changed how the election campaign is being waged in this key swing state. Our correspondent takes a trip there.

And if we're going to do a story about a food that's trending on the socials, you just know I'm going to be asked to find the cocktail angle on it. So be it. Today we're going to see and taste why a whole new generation is tickled by pickles.

First up though, Yesterday Rachel Reeves, Britain's Chancellor of the Exchequer, delivered her first budget to the House of Commons.

Any responsible chancellor would need to make difficult decisions today.

This was anticipated as a defining moment for the new government.

This budget raises taxes by 40 billion pounds. Any chancellor standing here today would have to face this reality. And any responsible chancellor would take action.

Conservative leader Rishi Sunak made his assessment soon after.

Broken promise after broken promise. And it is the working people of this country that will pay the price.

Now the budget has finally been announced. We know far more about what kind of country Britain under Labour will be.

There's a real contrast in terms of how Labour's approach this budget.

Archie hall is our Britain Economics correspondent.

On the one hand, the numbers are colossal. This is going to be the highest tax raising budget in modern British political history. This is going to be also one of the largest borrowing budgets, certainly outside of immediate economic crisis, in recent British history. And so in that sense, this was a real U turn from previous approaches and certainly from much of the past 14 years. On the other hand, that ambition didn't extend so much to the novelty of ideas in the budget and the strength of its reforming agenda.

So, Archie, the Chancellor said this was going to be a budget of ambition and it sounds like you agree with her.

Yes and no. It's certainly a budget that is raising large sums of money and is spending an awful lot of money. And in that sense, one shouldn't be deeply surprised that Labour, a left wing social democratic party, comes in and one of the things they want to do is to pour more money into public services, be more comfortable with a larger state and so on. The ambition, though, is more in terms of the size of the sums than in terms of the ambition of reform or the kind of governing project they're trying to pursue. A lot remains to be seen. There are a number of roadmaps that haven't fully been mapped out in terms of things like infrastructure spending, NHS reform and so on. But in terms of what we do know, this was a budget that focused mostly on raising lots of money, not really on improving the tax code. So Labour did not, for instance, choose to raise fuel duty and froze it in line with previous government policy. They ducked on opportunities, substantially reform capital gains tax, opting instead just to increase, increase the main rate. Their reforms of inheritance tax were a bit smaller, more than many had been expecting, and would have probably been ideal. And so on the specific measures in the budget, there was a sense that this was more focused on finding the money than on making the tax system better.

So in some ways, this is the first big policy test for the Labour government and it's one we've been waiting for for months. What have they actually done?

They found a lot of money and they're planning to put that money into public services. And their bet largely is that no matter what was said before the election, they had various pledges not raising tax on working people and so on. What Labour's done instead is to decide that actually, regardless of what they said before the election, what they think will win the next election is to get voters to see a perceptual improvement in the quality of public services and that's going to have to come alongside a substantial increase in taxes.

Okay, so we'll come to that spending in a minute. Let's just look at the tax rises first. Then where are the big gains coming from?

The single biggest move is in what's called employers, national insurance. That's a slightly different tax. What we generally think about when we say national insurance, which is the employee side national insurance, that's a tax that shows up in people's pay slips and effectively functions like income tax, although there are a few small differences. This happens on the pay before it even arrives on a workers pay slip. So from the employer itself. Now, in economic terms that's almost identical. And so effectively what's happened is a reversal of Jeremy Hunt's big cuts to national insurance over the course of the previous two big fiscal events. But Labour would tell you that's a tax on employers rather than employees and so doesn't break their commitments to not raise taxes on working people. Whether that's true depends on a lot of kind of legalistic questions about how you read Labour's pre election discussions and.

You'Ve mentioned already that spending is going to rise and of course spending and borrowing are the things that Labour governments are often known for, shall we say, what are the plans in that regard?

Effectively the entirety of that tax increase is going to be pushed into public services. That translates to an increased, but still not colossal 1.5% real terms annual increase in overall day to day public spending. The kind of main beneficiary of that is probably set to be the nhs. And so there are, I think, interesting and deep questions for the government in terms of historically a danger with putting more money into the NHS is that it's capable of sucking up a vast amount of money and whether that full translates into improvements and whether for instance, those are amounts of money where you could do real amounts of good in things like the courts or local government or policing with even a fraction of what the NHS gets are pretty live questions.

Will these measures resolve some of the problems Labour has indeed been dealt with?

Yes, Labour's been a little bit tricky on its claims about its dire fiscal inheritance. It's difficult because there are certainly issues that Labour was handed that are pretty serious in terms of public finances. So in particular the policy planned path of government spending laid out in the previous budget and indeed the last couple budgets from the previous Conservative government pencilled in very substantial cuts to public services that would have almost certainly been politically undeliverable for any government. Labour's claimed. And this is the bit that's more ambiguous and where there's more contestation that they subsequently discovered a very, very large additional hole in the public finances. You'll have heard about the 22 billion pound black hole, almost certainly. It's a regular theme now of almost any Labour minister talking to the TV and radio and so on. That 22 billion po is less a long term fiscal inheritance problem. About half of that is increases in wages for public sector employees, which was probably needed to avoid more strikes, but was a thing that was very foreseeable and so wasn't a new discovery on the part of Labour. About half of that was kind of genuine overspends in various government departments, a lot of which are probably only going to be true for a year or two. Some ambiguity about whether they would have extended. But insofar as they're only true for a year or two, the long run fiscal implications of those sorts of overspends aren't vast. And so the claim from Labour that they arrived at number 10, number 11, and discovered a situation that was vastly worse than they'd been expecting, one should be pretty sceptical about. But it is also true that there was going to need to be a substantial increase in taxes for sure, and very costly in borrowing in order to stop a serious deterioration in the quality of public services. And that would have almost certainly been true regardless of who was in charge. Now, the magnitude, the sheer size is maybe something that's more distinctive to Labour, but needing to respond to that in some senses would have been true regardless who won the election.

What do we now know about what Britain will be like under this Labour government?

This is a Labour government that is comfortable with a more European style approach to taxation and to government spending, I think, is the main conclusion I take from this budget. So the classic claim about Britain's public finances is that we'd been trying the unsustainable act of trying to have an American taxation system. So comparatively low levels of taxation relative to a lot of advanced economies, but use that to deliver a European style set of public services. So a high quality health system, high quality schools, large state role in all those things, rather than more of a role for private provision as in the us and of course, even in the best of times, that was quite a difficult balance to maintain. And as growth has gone down and as demographic pressures on the NHS have built up and on pensions and elsewhere, that's become trickier and trickier. And there are of course, different ways out of that. There's The American route, as it were, which is you can argue at times what the Conservative government did, although more in the first half of the last government in the second half, which is to try to pare back the state in order to sustain a lower tax economy. Or there's the quote unquote European route, where you just live with substantially higher share of taxes relative to GDP and you put that into higher quality public services. And Britain still sits somewhere in the middle between those two approaches, but Labour's indicated that it's a bit happier drifting more in the European direction.

So, Archie, is this the right budget for Britain now?

Mostly, I think, would be the answer. The big moves up in tax were almost inevitable and necessary. The big moves up in borrowing are probably a good idea, but a lot will hinge on whether that's money is well spent. And Britain has a long history of highly expensive infrastructure projects that run vastly over budget, get cancelled and have issues so that there's real ambiguity there. But in broad strokes, the shape of this was close to what Britain needed. A lot of the details are a lot worse than they could have been, some of which reflects the political constraints Labour created for itself around things like having to do with national insurance, rises through this rise on employers. National insurance, which creates issues because it increases the wedge in tax between people who work for a company, people who are self employed. And also there are a number of areas, as discussed before, where labor had the opportunity to be really reforming and ambitious on tax and didn't. So in broad strokes, a lot of this makes sense, but there was a lot more space to do better on the details and Labor's taking quite a cautious approach on that.

Archie, thank you so much for talking to me.

Thank you so much.

Of the 80 locations, I was pleasantly surprised to find that only 15, possibly 16, could not be used.

In Buncombe county in North Carolina, a group of election organisers is gathered around a map spread out on a table.

Stevie Hertz is our US Audio correspondent.

They look like generals surveying the terrain and plotting an assault.

We did have five locations with flood damage. We have one that has a downed tree on the building and then one where access blocked. And we'll talk about.

Karine Duncan is the director of elections in the county. She and her colleagues are trying to relocate polling places damaged by Hurricane Helene last month.

Garon Creek. This is our southeastern corner of the county. There are major road issues out there still. Power, phone, all of the things out there.

The storm left about 100 people dead and roads and buildings destroyed. Now, amid the still ongoing recovery effort, an election is taking place. North Carolina is one of a handful of swing states that will determine who wins this year's presidential election. And the race in the state is incredibly close. Nearly 1.3 million registered voters live in the parts of western North Carolina that were hit hardest by the storm. Whether or not these voters turn out in large numbers may be a big factor in the battle between Donald Trump and and Kamala Harris in the state. So I headed there as early voting began.

We want everybody to vote. Election day's November 5th, so we're going to find a way to open 80 precincts one way or another.

Jake Quinn is the chair of the Board of Elections in Buncombe county, which includes Asheville, the largest city in western North Carolina. He's another official that was huddled around that table at the Board of Elections. A month on from the storm, flooding has receded and the roads have been cleared. But reliable access to drinking water may still be months away. I met with Quinn later at one of the few cafes open in Asheville. It was really busy, and one of their drink specials was called the Storm. It was served with sea salt.

That storm hit us with a vengeance on Friday the 27th, and I couldn't get out of my house. I mean, I couldn't drive anywhere until the following Tuesday, and that's because of all the trees down in my neighborhood.

Since the storm, there have been tons of changes in how the election will be administered. Polling place hours and locations are often different. Absentee ballot requests have surged. The people running the election have also been displaced. The number of available early vote workers has fallen by a third. And in Buncombe county, those election workers get assigned ballots, codes for the voting machines and two giant bottles of antibacterial gel for the Portaloos. But the trickiest thing in all of this is going to be telling people where to go vote.

Voters deeply appreciate consistency. They want to go to the same place every time to vote.

The presidential campaigns have changed, too. Democrats have mostly paused campaigning, citing concerns about the well being of residents and staff. Canvassing is beginning again in areas with reliable water and electricity, but not that many people are home anyway. A lot of people evacuated after the storm. Republican leaders are pushing harder. They also have much more to lose. In 2020, when Trump won North Carolina by just over 1%, he out polled Joe Biden in these counties by more than 200,000 votes. That could easily be the margin of victory this year. The former president made a campaign stop last week in Swannanoa, one of the worst hit areas. He spoke at a podium with a backdrop of rubble, washed up roads and damaged houses. He repeated an attack line that he's used since the storm that the disaster response agency has been spending money on undocumented immigrants, but they spent a lot.

Of money on bringing illegal migrants, people that came into our country illegally and taking them in, and all of the money they've spent. Numbers that nobody.

What Trump is saying here isn't true, but it's resonated with voters, and that's another big issue that's come up in this election. It seemed like the perception of how well the response was going kind of depended on your politics. In Asheville, Democrats I spoke to were not super sceptical like one voter I caught up with as she waited in a very long queue to cast her ballot on the first day of early voting.

For me, it's like watching the government work at its best and helping us. It's just like we've had tremendous help in this community and we'll continue to have tremendous help. So that's just another reason to get to the polls and vote.

But in Rutherford County, a rural county that Trump won decisively, voters felt abandoned.

FEMA has not even reached out yet. And I filed my application right immediately.

And a lot of people are being denied.

And they.

Observers say that fema, America's disaster response agency, has done a pretty good job in North Carolina and that picking up from such a devastating storm will just take time. The environment here is not all too different from 2020, when the COVID 19 pandemic and the government's response electrified a polarized electorate. So far, it has been a record turnout in the election. But the early vote here in western North Carolina has been lower than elsewhere in the state. And keeping it up as the state struggles to recover will be a challenge.

I've again been summoned to the studio. This time I've been told to bring supplies. I can see that someone else has been told to bring some supplies as well. Rachel Lloyd, our deputy culture editor, is here. What's going on?

We're here to make some potentially disgusting pickle dishes.

Pickle dishes?

Pickle dishes.

Why is that?

Pickles are having a bit of a moment. They used to sit unloved in the back of your fridge, brought out occasionally to go on a burger or on a charcuterie board. But they've exploded in popularity online.

I should have known this was going to be an online foodie trend. Go on, tell me more.

Give me the numbers on TikTok. There's been more than 300,000 videos about pickles. Some of them have in excess of 50 million views. You get youngsters filming themselves trying hot, sour garlic varieties. Of course, the classic dill one went viral at the end of last year, called the Chamoy pickle, which is a kind of spicy red iteration wrapped with a fruit loop and has hot Cheetos in it and hot sauce and all sorts of other things as well.

But the pickle has been around, like, for a big old chunk of human history. Why this sudden outpouring of love and innovation for it now?

Yes, indeed. I mean, it goes back to the ancient Mesopotamians. Cleopatra ate them. So did Caesar. Christopher Columbus took them on his travels. They're definitely not new, but there are a few reasons why they've exploded in popularity now. One is the pandemic. People had time to experiment at home. They're easy to make. You can have them as a snack, but you can have them in different ways and combinations. You can make vinaigrettes. And also, if you make them with a salt brine, they're good for you. They're a fermented food. Fermented foods are meant to help your microbiome in your gut.

And presumably the liquid part of this, what the pickles are floating around in, are just as good for you, if it's good for you at all.

Yeah.

So the salty brine also has its uses. Runners often buy it to rehydrate, to stock up on electrolytes. Dua Lipa recently went viral for stirring in some pickle juice into her Diet Coke, along with jalapeno juice. Oh, indeed. But of course, Jason, you're a cocktail connoisseur, so you'll know that there are many uses for pickle juice in cocktails.

Yes. It's now clear to me why it is. I've been asked to bring in cocktail ingredients. All right. With the pickle brine I see before me, we can do the basic one. Now, this is certain to make a tremendous mess. That is really wet. Disconcertingly wet.

She needs some Halloween in the jar.

Jason. Yes.

Actually, do you know what you need to do is pop the lid, get under the seal. Well, that is pungence when you open it.

This is like the apotheosis of a pickle containing sort of drink is the pickleback a shot of bourbon with a shot of pickle juice to follow. Nice, healthy pour. Because it's late in the day. Come on, guys.

Actually, not so bad.

We move on to a food.

So we have the aforementioned pickle in a pouch. Then inside that goes squinkles.

What's a squinkle?

It looks like a strawberry lace.

Okay. A Twizzler that goes inside in its entirety.

Yeah, I'm gonna shove that in.

This is already repugnant.

Okay.

Okay.

And then some Takis, which are. Which are crisp.

Note from the studio. Check and make sure everything is in date. Thanks. Thanks.

Okay, then fruit roll up on the edge. So then we sprinkle some tagine, which is a seasoning. Okay. And then as the piece de resistance, we have chamoy sauce.

Is it ready? 3, 2, 1.

That is so horrible.

It really is.

It's so salty. Yeah. The mix of textures, which I do like in foods, is particularly off putting in this one.

Don't do things for clout online. It's not worth it.

I'm going to need something to wash that down in a big way. We're gonna have not just a martini, but a pickly Martini.

I think this is gonna be good.

Well, I mean, it's in keeping with other variations. Right? Dirty martinis, the brine from the olives. Right. So it's not like completely mad.

Yeah.

You'll need to find a piece of this plate that is not sullied by that thing you made me eat. It's your continued brine driven house.

I think that's delicious.

Thank you for this cultural tour, Rachel.

You're very welcome. Thank you for having me.

There's still time just to get two years of the Economist halfway price with full access to Economist podcast plus included. That offer ends today. Subscribing helps make our journalism possible. So thank you. That's it for this episode of the Intelligence. Do let us know what you think of the show. You can get in touch@podcastconomist.com we'll see you back here tomorrow.