Before Policies Can Work, the Government Must Fix Its Own Process

Speculation, mixed signals, and shifting promises are quietly damaging economic confidence - and the government must rethink its approach. 

The Chancellor of the Exchequer, Rachel Reeves, just announced the highly anticipated autumn budget on November 26th, introducing policies such as a 26 billion tax rise, scrapping the two-child benefit cap, and the pay-per-mile road tax. However, instead of focusing on these policies, we must first shift our attention to how the government handles its policy-making process and how this is secretly damaging our economy. 

One of the current government’s fiscal strategies is to ‘give businesses and households the certainty they need’. This is very important as uncertainty in an economy and its polices can seriously hinder economic growth and development. While consumers may reduce consumption, businesses will be hesitant to commit to long-term investment; these are key factors driving economic growth, something that is desperately needed in the UK economy. However, the government does not necessarily align its strategies with its fiscal policy decisions or its decision-making process.  

Just months and weeks before the Chancellor was due to deliver her budget, there have been round after round of speculation. According to the former Chief Economist of the Bank of England, Andy Haldane, these speculations have damped people’s willingness to spend, slowing down economic growth, and stating that there is a direct link between these speculations and weak growth. Keeping people and businesses guessing, increasing uncertainty is what is occurring with the current processes. Just one week before the budget, there was speculation about a rise in income tax, only to be quickly dismissed a couple of days later. Although this never made it into the budget, the damage was done, and people will prefer to save rather than spend as they remain uncertain about the direction the government is taking. This is just one of many examples in which these combined uncertainties have become a key obstacle to the country’s economic growth.  

But the bigger problem is that the current Labour government has failed to commit to its original plan and the strategies it promised to the public. The most controversial is the failure to honour its original promises and commitment to avoid any tax rises. Last year, we already saw a £32 billion tax rise, and in this budget, a further £26 billion. Now the Chancellor cannot even rule out future tax rises, with many expecting the government will need to raise taxes to cover its rising spending. This is not only politically damaging to the Labour Party but also to the government's credibility, increasing uncertainty. The shifting of government policy direction once again prevents people and businesses from investing long-term, as they fear being hit by unexpected fiscal policy changes.  

I don’t intend to criticise the government’s individual policy choices, but rather to examine the way it conducts its policy-making process in the first place. What the government urgently needs is a more straightforward, more consistent strategy, one that signals to households and businesses the long-term direction of travel, allowing them to plan with confidence rather than react to sudden shifts. Nowhere is this more important than in the budget process. The current approach must be overhauled to minimise speculation and prevent rumours from shaping economic behaviours. As Andy Haldane has argued, the system should be made far more “water-tight,” similar to the Bank of England’s monetary policy-making process, where disciplined communication and strict confidentiality significantly reduce uncertainty. Until the government adopts a more robust, predictable process, any policy, good or bad, will be overshadowed by the instability created long before it is even announced. 

So, before we can even begin debating the effectiveness of individual policies or ideas, the government must first repair the foundations of how those polices are made to enable a stable environment. By eliminating the confusion and policy whiplash surrounding its fiscal decisions, the government can then restore certainty and confidence, removing a silent drag on economic performance. Only then will the conversation be able to turn to judging policies on their substance rather than the uncertainty that precedes them.