If Reeves was even a quarter as clever as she keeps claiming she is, she would not have been taken by surprise. She would have figured out this was the worst possible moment to tax, borrow and spend more.
It is a mistake to be too parochial. The backlash against this Budget is simply part of a global trend. Driven by Left-leaning bodies such as the IMF, many political leaders fell for the line that the markets automatically supported bigger government.
Borrowing to invest would pay for itself with higher growth, while hugely expensive “green industrial strategies” would be self-financing, generating lots of well-paid jobs and plenty of extra tax revenues. In France, President Macon believed that, so did President Biden in the US, and so did leaders across Europe, including those of the Labour Party.
That has now clearly changed. France is the most dramatic example. Under President Macron, the country effortlessly borrowed its way through the last seven years, adding 20pc to its debt-to-GDP ratio. Following chaotic elections earlier this year, the ratings agencies have downgraded its debt twice, bond yields have soared and it can’t borrow any more.
It is not hard to work out why. A government addicted to big spending is running a deficit of close to 6pc of GDP, with no crisis to deal with, while growth has stalled.
France can’t keep adding to its debts, and Barnier has been reduced to desperately searching for extra taxes, charging the likes of LVMH hundreds of million of euros a year in “temporary surcharges” to try and keep the country’s finances afloat.
Likewise, after getting bailed out by the EU’s massive Coronavirus Recovery Fund, Italy is back in deep financial trouble, imposing windfall taxes to try and balance the books. The EU has abandoned plans for joint debt to reboot its stagnant economy with green investments because no one wants its paper.
Perhaps most importantly of all, Wall Street is starting to worry about the stability of the American government’s debt, with bond yields hitting a three-month high over the last week even as the Federal Reserve cuts interest rates (which means yields should be going down). It has become clear that neither candidate in next week’s presidential election has any plans to reduce a deficit already running at 6pc of GDP and might even increase spending further.
