History lessons for Reeves ahead of Budget

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The dispatch

Despite the millions of words written and spoken about today’s Budget, the event will probably be all but forgotten a decade hence.

Give or take one or two, most Budgets are quickly forgotten by most people apart, maybe, from some politics nerds and the splendid folk at the Institute for Fiscal Studies who are paid to assess these things.

Rachel Reeves, the chancellor of the Exchequer (U.K. finance minister), has done her best to challenge that convention. Her first Budget, delivered on Halloween 2024, is still debated a year on because of the £25 billion ($33 billion) she extracted from businesses via an increase in employers’ national insurance contributions (a payroll tax) and the resulting rise in unemployment.

In the main, though, few Budgets remain in the consciousness even weeks later.

An exception was delivered on March 10, 1981 by Geoffrey Howe while Britain was in the grip of stagflation.

Inflation, which had taken off in the mid-1970s, was running at 15% while unemployment had risen by one million over the previous year.

The national debt was also surging. Howe’s response was a Budget that raised the then-enormous sum of £4 billion in taxes via a freeze in thresholds — a tactic Reeves is set to deploy today — and big increases in alcohol, tobacco and motor fuel duties.

There was a windfall tax on the banks, whose profits had been swollen by the government’s recent increases in interest rates aimed at curbing inflation (the Bank of England did not gain monetary independence until 1997), as well as a tax on the oil then starting to flow from the North Sea.

Coming from a government committed to cutting taxes, it was highly controversial, with several MPs from Howe’s own Conservative Party walking out during the speech.

At the end of March 1981, 364 economists — among them Mervyn King, a future Bank of England governor — famously wrote to The Times arguing there was “no basis in economic theory or supporting evidence” for his policies, warning that the Budget threatened Britain’s “social and political stability.”

While painful, Howe’s third Budget is now remembered as one that tamed inflation and enabled interest rates to be reduced, bringing down a high exchange rate that had been hammering British industry. Most economic historians now agree it set Britain on a path for growth for the rest of the 1980s.

Ghosts of Budgets past

Also well remembered from that era, with Prime Minister Margaret Thatcher in 10 Downing Street, was the 1988 Budget presented by Howe’s successor Nigel Lawson. It still divides the…