Chancellor Rachel Reeves plans to shield banks from tax rises in her budget on 26 November, according to the Financial Times. At the same time, there is widespread speculation that she will raise income tax for workers, shredding the Labour electoral mantra that they will ‘make work pay’.

Reeves said “each of us must do our bit” on 4 November, sparking concern that she will regressively tax across the board, despite obscene levels of wealth inequality in the UK.

With the rise of the Greens and Reform bringing an end to the two-party consensus, Labour seems determined to hurry its own demise.

Out-of-date economics from Rachel Reeves

Aside from being morally wrong, the idea that Rachel Reeves should raise taxes on workers to ‘balance the books’ is economic claptrap. In the 21st Century, Modern Monetary Theory (MMT) has surpassed the classical economics taught in universities.

MMT proponent, economist and former advisor to Bernie Sanders, Stephanie Kelton notes that “the idea that taxes pay for what the government spends is pure fantasy”. Instead, the government issues currency that it can use to organise the country’s available expertise and resources. Manpower and resources are the constraints on government spending, not money ‘raised’ from taxes. Instead, the government can use taxes to control inflation and rebalance the economy if it is highly unequal, as in the UK today. That’s why increasing taxes on banks that profit from predatory lending would be a promising way to address disparities.

The way taxes can control inflation is straightforward. Taxes make money more scarce when it has been overproduced. Taxes remove money, they do not raise it. The government issuing currency is the actual source.

On top of that, if the government invested money into re-nationalising utilities and other basic necessities like broadband, they would become money making assets for the state in part and lower bills for the people as well.

Bowing down to the banks

It seems the corporate control of the Labour party will continue. Charlie Nunn, the chief executive of Lloyds Banking Group, warned Rachel Reeves in July that higher taxes on banks “wouldn’t be consistent” with Labour’s focus on the financial sector to boost growth.

Reeves potentially targeting working people instead of banks comes despite UK banks making £45.9 billion in net profit in 2024.

There are other issues with lax taxes on banks. They are funnelling money into climate destruction through financing fossil fuels, to the tune of billions of pounds. Rachel Reeves better change track unless she wants to supercharge the end of Labour, as the polls show no one’s impressed with their administration.

Featured image via the Canary

By James Wright

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