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If the LabourParty GDP gdpCYour browser does not support the element. had a two-word pitch going into the last general election, it was “economic credibility”. , the then shadow chancellor, said it at every turn. Labour was “the party of economic credibility”, said Ms Reeves in one interview. “Out of the wreckage of Tory misrule, Labour will restore our economic credibility,” declared the shadow chancellor in another speech. There would be no tax rises on working people, Ms Reeves told Middle England. There would be no spending cuts, she reassured her base. And there would be iron-clad fiscal rules, she warned one-and-all.A peculiar thing has happened since. In government, pledges designed to make Labour look credible now do the opposite. Measures to bind the chancellor to a steady course guarantee an erratic one. Rules aimed at reassuring voters instead create political hysteria. The chancellor is caught in a credibility trap, where abiding by one promise made in the name of credibility undermines another. The government’s credibility relies on incredible promises that cannot be met.At the heart of the problem are Labour’s fiscal rules. Ms Reeves has pledged not to borrow for day-to-day spending and to have debt falling as a percentage ofby 2029-30. In March the Office for Budget Responsibility, a watchdog, will judge whether she is on track to meet them. A recent jump in the cost of British borrowing, which was met with a flurry of gloomy headlines, means she may well not be. Looking credible can be a curse if it is based on things over which the chancellor has little direct control, like a global increase in the cost of government debt. Or as Mark Blyth, an economist at Brown University, puts it: “If your fiscal rules are in charge, you’re not in charge.”An easy, if incredible, solution exists: a few tweaks to long-term spending plans for 2029-30 and Labour’s fiscal rules are unbroken once more. Everyone from Treasury civil servants to bank analysts to the Institute for Fiscal Studies, an influential think-tank, knows that the spending plans are meaningless. Yet each must pretend they are on some level real. Two civil servants discussing spending plans for 2030 may as well be in a dialogue from “Alice’s Adventures in Wonderland”: “Why, sometimes I’ve believed as many as six impossible things before breakfast.”If the fiscal-credibility problem—as seen through over-caffeinated journalists examining a gilt chart for the first time—disappears, a problem of political credibility appears. Labour was elected on a platform of improving threadbare public services. For the sake of short-term political credibility, the government may pledge to go against its fundamental purpose. This rarely works.The alternative of tax rises is just as incredible. Ruling them out is how Labour thinks it wins elections. Labour was duly elected on an incredible pledge not to increase any of Britain’s main taxes: income tax, value-added tax, national insurance and corporation tax. This pledge is already broken, yet Labour seems determined to glue it back together and pretend it is as good as new. Labour’s first budget raised £40bn (1.5% of ) in taxes. Since then, Ms Reeves has toured television studios and -suite breakfast meetings, assuring every audience that it was a one-off. A ploy to look credible comes off as anything but.When caught in a credibility trap, media hysteria is inevitable. After all, it is easy to see when promises have been broken. Difficult economic questions (why have borrowing costs shot up globally?) are replaced by more comprehensible, if inane, political ones (should the prime minister sack his chancellor?). The prime minister, who has outsourced economic policy almost entirely to Ms Reeves, could decide to sack his chancellor. In the same way he could decide to walk out of Downing Street, lay down on Whitehall and wait for a Number 159 bus to crush him.Perhaps Labour, with its proclivity for spending on public services, cannot govern in a time of genuine fiscal constraints. Yet there is nothing new about Labour’s predicament. For all its spendthrift stereotype, it has a long tradition of fiscal conservatism to draw on, point out Colm Murphy and Patrick Diamond of Queen Mary University of London, in a forthcoming paper.Before the coalition government of the 2010s, austerity was most associated with Clement Attlee, the sainted former Labour leader, whose government implored Britons to “produce more and consume less”. Even New Labour, which eventually showered public services with cash, was at first an austere project, sticking to tight spending plans left over by the outgoing Conservative government. Gordon Brown called it “prudence with a purpose”.Whenever Labour has governed in an austere manner, it was framed as a project of morality rather than the performance of credibility. Fiscal conservatism was pursued by centre-left governments not merely because it was a pragmatic course, but because it was, they argued, right—just as it is today when unemployment is low and debt is both high and expensive. By contrast, under Ms Reeves, difficult choices are made on the basis of foolish rules designed to make the government look credible—even when their actual effect does the opposite. Rather than a tool for social democratic ends, looking credible has become a goal in itself.Ugly choices will befall Ms Reeves in the coming year and beyond. The government can still be the master of its destiny, rather than the victim of it. If Labour wishes to reform Britain’s failing benefits system, it can do that, rather than reverse-engineering a welfare system around fiscal rules everyone admits are a farce. If Labour wants to rejig Britain’s tax system, it can make the case for that rather than being forced into it by a market wobble. Stop trying to look credible. Try to do right.
