Rachel Reeves announced the discovery of a “black hole” in the public finances, and blamed the previous Government for concealing it. Jo Michell argues that the use of such metaphors to describe public finances is misleading and leads to damaging and inaccurate narratives about the economy, which in turn produce bad policies. 

Listening to Rachel Reeves’ speech, it was hard to avoid a sense of deja vu. Reckless overspending, debt “through the roof”, and “the worst inheritance since the second world war”. Perhaps even more alarmingly, a “black hole” had been found, apparently coexisting with other previously identified singularities somewhere in the public finances. Although the metaphors have evolved, the political message was the same as that delivered by George Osborne in 2010: the finances are in disarray, it is the fault of the previous administration and, now that the grown-ups are in charge, difficult decisions will have to be made.

It is easy to see why Reeves would copy Osborne’s political strategy—even  if it is increasingly difficult to find anyone willing to defend the austerity it justified. In the early days of a new administration, before familiarity sets in, the government has an opportunity to define itself in the minds of the public—and to pin the blame for unpalatable choices on the previous incumbents.

In 2010, Labour handed this opportunity to the Conservatives on a silver platter: the outgoing Chief Secretary to the Treasury, Liam Byrne, left a now infamous note for his successor: “I’m afraid that there is no money.” David Cameron was still brandishing it during the 2015 election campaign.

There are costs to using misleading language and simplistic narratives about the public finances. Ultimately, the language and narrative Reeves uses may end up defining the policies she pursues.

The Conservatives, in turn, gifted Labour the Truss mini-budget. Unfunded tax cuts triggered instability in government debt markets, Bank of England intervention and the end of Truss’s ill-fated premiership. Labour never hesitate to remind us, incorrectly, that “Liz Truss crashed the economy”.

These examples highlight the power of simple stories and pivotal events in shaping the minds of the electorate. But there are costs to using misleading language and simplistic narratives about the public finances. Ultimately, the language and narratives Reeves uses may end up defining the policies she pursues.

Talk of “black holes” is misleading

Reeves’ central message is that she has discovered a £22bn black hole in the public finances, created and covered up by the previous chancellor. What is this “black hole”? Obviously it is a metaphor: there is not literally, somewhere in the Treasury, a mass so dense that light cannot escape from it. By “black hole”, Reeves actually means “overspent budget”: This year, Reeves explained, government departments would outspend budgets by a record £22bn. Cuts will be needed elsewhere to compensate.

The language used to describe things matters. This was one of the conclusions reached by a recent report commissioned by the BBC into its coverage of fiscal policy.

This may be a new kind of fiscal black hole, but it is not the first: in the aftermath of the Truss-Kwarteng mini-budget, the media was suddenly awash with reported sightings of gravitational singularities. The magnitudes were uncertain: sometimes 30 billion, sometimes 50 or 60, depending on the witness.

This earlier “black hole” was an attempt to measure -or guess- how badly the government’s fiscal rule would be breached in forthcoming forecasts. The rule requires debt as a share of GDP to be falling in the fifth year of forecasts produced by the Office for Budget Responsibility. As we pointed out at the time, this “black hole” was nothing more than the difference between an uncertain forecast and an arbitrary target.

The language used to describe things matters. This was one of the conclusions reached by a recent report commissioned by the BBC into its coverage of fiscal policy. It noted that, in the case of the public finances, political choices are often presented as unavoidable decisions. If these claims are reported at face value, impartiality is at risk: “the language of necessity takes subtle forms; if the BBC adopts it, it can sound dangerously close to policy endorsement”.

Describing overspending as a black hole is a case in point. What does the image of a black hole bring to mind? An impending catastrophe; an overwhelming force of nature. A situation outside of human control.

Describing the problem as a black hole rather than an overspent budget provides cover for the chosen response.

Reeves responded to the overspend by cutting infrastructure spending and dropping the pensioners’ winter fuel allowance and the social care cap. In the face of apocalyptic catastrophe, these appear to be unavoidable choices. But in the face of mere government overspending, it is more obvious that there are alternatives. Choosing not to spend £2bn on a tunnel to bypass Stonehenge is reasonable under the circumstances. Saving a little over a billion a year by removing the cap on social care costs is not.

A better choice would have been to reverse the previous government’s cuts to National Insurance. While this would break an election pledge, it would not only recoup £20bn this year, but would raise a similar amount in every future year. Alternatively, the overspend could have been covered by extra borrowing. Describing the problem as a black hole rather than an overspent budget provides cover for the chosen response.

Bad economic narratives – the household analogy

The problem is wider than an isolated example of inappropriate language. From 2010 onwards, as well as falsely blaming Labour for running a profligate fiscal policy, the Conservatives persuaded the electorate and, crucially, the media, that austerity was essential, that the economy was recovering strongly and that we were “paying down the debt”. None of these were true: austerity was a choice, productivity and average wages have barely risen since 2010 and the debt-to-GDP ratio was substantially higher at the end of Osborne’s period as Chancellor than at the start.

Government finances are very different to those of households.

The victory of false rhetoric over economics- what Simon Wren-Lewis has called mediamacro – relied on repeated use of inaccurate household analogies. Government finances are very different to those of households. For governments, expenditure affects income: when the government cuts spending, this leads to lower economic activity and thus lower tax revenues. In contrast, the amount spent each month by a household has no effect on its income. At the same time, a household can borrow only what a bank or other creditor is willing to lend it; widespread willingness to hold government bonds as financial assets means that the financial constraints faced by governments are far looser.

Starmer and Reeves present themselves as the grown-ups in the room. But the language of black holes, maxed-out credit cards and household budgeting is that of over-caffeinated journalists, not sober politicians.

During Osborne’s austerity, and despite these crucial differences between governments and households, the media was awash with stories of maxed out credit cards and the need to tighten belts. Labour appear to have learned the wrong lessons from this episode. While in opposition, Keir Starmer repeatedly accused the Conservatives of “maxing out the credit card”. Ahead of her speech, the chancellor said, “If we cannot afford it, we cannot do it… When household budgets are stretched, families have to make difficult choices. And government needs to do the same.”

Starmer and Reeves present themselves as the grown-ups in the room. But the language of black holes, maxed-out credit cards and household budgeting is that of over-caffeinated journalists, not sober politicians. This sensationalism would not be tolerated in discussions of national security or public health—why is it accepted in discussion of the finances?

Journalists and thinktanks also bear responsibility: reporting of black holes, without context or scare quotes, implicitly endorses misleading political narratives. The BBC was notable for careful reporting around Reeves’ statement. Others should have done better.

Language and narrative ultimately affect policy

Labour will have to accept higher taxes and higher borrowing if further cuts to government services are to be avoided. Substantially higher public investment is needed. Labour’s pre-election pledges – no increased taxes on “working people” and “iron-clad” adherence to Conservative fiscal rules – make it all but impossible to square this circle.

Reeves’ inversion of Keynes suggests that a desire to avoid difficult political decisions may trump the UK’s much-needed reconstruction and modernisation.

There are therefore grounds to fear that Reeves may borrow more from Osborne than political strategy. As others have noted, “If we cannot afford it, we cannot do it” inverts the famous Keynes quote, “Anything we can do, we can afford”. Keynes’ point is that the successful construction of new infrastructure demonstrates in itself that it is affordable to society. Anything that can be built can be financed, with sufficient political will.

Reeves’ inversion of Keynes suggests that a desire to avoid difficult political decisions may trump the UK’s much-needed reconstruction and modernisation. If Reeves chooses not to confront the politically difficult issues of taxation and borrowing, there is trouble ahead. Stagnating investment will undermine Labour’s drive for growth and lead to further deterioration of the finances over the long run.

The grown-up course of action is to level with the public—using appropriate language—about the choices we face. It would be reasonable to explain that higher taxes and adjustments to fiscal rules are needed, despite election pledges.

If Reeves decides instead to hide political choices behind sensationalised claims and misleading equivalences, there is a real danger that fourteen lost years turns into two lost decades.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

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