Reeves has already done irreversible damage to Britain
Less than a year after taking office, Rachel Reeves already looks to have inflicted irreparable damage on Britain's economy.
Last autumn's budget saw the largest fiscal loosening of any event outside of July 2020 since the Office for Budget Responsibility's foundation, with a spending increase of almost £70bn enabled by £36bn in tax raids and a tweak to definitions of government debt.
This had three easily foreseeable effects. The first was that the choice to raise taxes through employers' National Insurance, and therefore directly on payrolls, rather than slower-adjusting wages and prices, contributed to a sharp contraction in the labour market that a rise in public sector spending does not appear to have fully offset.
The number of payrolled employees dropped by 274,000 between May 2024 and May 2025, with April's fall of 109,000 the steepest monthly decline since the pandemic. While some employers are laying staff off, others are cutting back on plans to hire, and the result is that there were 150,000 fewer vacancies in the latest quarter of data than a year before.
The second predictable consequence was that a massive expansion in government borrowing would make future tax rises more likely. Gilt yields have risen, and with the 30-year now near its post-1998 peak, investors are displaying concern over the scale of the borrowing over the coming years of this Parliament.
Growth forecasts, meanwhile, have fallen. The result is that the Chancellor has a razor-thin buffer against her fiscal rules and may well be required to cut spending or raise taxes in the autumn.
And this brings us neatly to the third consequence of Reeves's Budget: people who can see where this is going, or are already in line to feel the pain, are getting out while they can.
You or I might have viewed it as an obvious consequence; taxes specifically targeting some of the most internationally mobile groups in your country have at least one clear route through which they might spectacularly backfire. Regrettably, however, the exodus of millionaires from Britain reported by advisers over the last year still seems to have caught Rachel Reeves by surprise, and in the process created a new problem.
Britain's welfare state rests to a great degree upon a narrow pillar of high-income taxpayers, with the top 1pc of earners accounting for 29pc of the income tax take.
Now consider which groups Labour's taxes targeted: those with assets, by raising capital gains. Those who wished to provide for their children, by expanding the scope of inheritance tax and levying VAT on private school fees. And those who are in the country temporarily, by scrapping non-dom status in favour of a four-year residence-based status, with brutal inheritance tax provisions coming into force after that period.
Small wonder that the wealthy seem to be fleeing Britain. Small wonder, too, that Reeves appears to be considering an about-turn on part of her non-doms tax raid. But having killed the goose that laid the golden egg, resuscitating it may prove rather more of a challenge.
A partial reversion to the status quo ante might staunch the bleeding and prevent further departures, but it's far from clear that it will lure back those who've already left – particularly given that pressing need to raise taxes again over this Parliament, and Labour's clear preference for doing so by taxing the rich first.
This would create a real headache for the Chancellor. The strategy of 'taxing the rich' already had limited room left to run. Robert Chote, the former OBR chairman, remarked a decade ago that the minimal impact of the decision to cut the rate from 50p to 45p had shown we were very likely 'strolling across the summit of the Laffer curve '. A smaller tax base of wealthy people would mean attempts to shift the cost of Labour's spending on to that group would mean much higher increases in individual tax burdens – likely triggering a renewed exodus. In other words, the money is going to have to come from somewhere else.
In the last year or so, French users of the social media site X came up with the delightful meme of 'Nicolas, 30 ans' – the 30 year old graduate working in a good job, who finds their salary drained by taxes that pay for public spending on other people; benefits for the unemployed, pensions for the retired, aid for the third world, and so on.
'Nicolas' hasn't had a much better time of it in Britain. The vast majority of the rise in government spending since 2019 has gone on items that the young and employed have relatively little use for – interest on the debts accrued by previous generations, welfare, the NHS – while the tax burden has risen to a post-war high.
Regrettably, Nicholas might also be Rachel Reeves's best target. Compare data on the tax 'wedge' for a single worker on average wage with government spending as a share of GDP, and you'll replicate Dan Neidle's finding that no OECD country spending as much as Britain does so with a tax burden for the average worker as low as ours.
If we aren't willing to cut spending to emulate the likes of the USA, Australia and Switzerland, then we will likely raise taxes to match countries like France. And Labour has no visible intention of cutting spending.
While Reeves might have failed to predict the obvious consequences of her policies, it's not hard to see where she might go from here. The Labour Party is winning its war on private wealth. Now, average earners will pay the price.
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