A milkshake tax? Rachel Reeves is clutching at straws

You might not have heard, but there is a multi-billion pound ‘black hole’ in the UK’s public finances. ‘Everyone has their part to play [in repairing it]’, chancellor Rachel Reeves told the public last week, with characteristic gloominess. Now, just over a week out from her second budget, Reeves has identified a solution to the crisis that is sucking the life out of the economy: a tax on milkshakes.

The chancellor’s latest proposal is not what you would call a significant economic reform. But with her hands tied by the bond markets, the Office of Budget Responsibility (OBR) and mutinous backbenchers, it is apparently the best that she and the Labour government can do. According to reports, the big idea is to remove the dairy exemption from the Soft Drinks Industry Levy, which was introduced by the Conservatives in 2018. It also proposes to reduce the threshold at which the 18p tax currently strikes, from five grams of sugar per 100millitres to four grams, therefore netting the Treasury somewhere in the figure of £50- to £100million in extra revenue.

Of course, this won’t make much of a dent in the so-called black hole at all. Depending on who you listen to, and on what day of the week it is, the money Reeves needs to find to meet her self-imposed fiscal rules is somewhere between £20 billion and £40 billion pounds. This is why the chancellor also plans to come after other enjoyable, yet distinctly yester-year, pastimes, like pub fruit machines. The Treasury calls this the ‘smorgasboard’ approach: an array of small taxes that it hopes no one will notice.

The milkshake tax reeks of desperation, even by this government’s abysmal standards. Reeves had spent weeks preparing the country for a rise in income tax, or ‘rolling the pitch’, as it is known in political circles, with dire warnings about the health of the budget. Then – just her luck – the OBR revised the size of the black hole (there doesn’t yet appear to be a metaphor for quantum fluctuations), supposedly sparing Reeves the need to increase income tax.

Of course, no one with even half a brain believes that the UK’s bleak financial position has somehow magically improved overnight. However, after Reeves’s humiliation in July, when the Labour backbenches rebelled over (fairly mild) proposals to reform welfare, combined with the historic unpopularity of prime minister Keir Starmer and his Labour government, these tiny, tinkering measures are about the only thing she has the political space to do.

What is described as a ‘black hole’ is simply a problem that most Western countries are experiencing. In layman’s terms, the UK’s spluttering economy does not raise enough money in taxes to meet its dizzyingly high levels of spending.

Instead of inconsequential taxes on milkshakes and a form of gambling that most people under the age of 40 wouldn’t even know existed, the majority of voters would simply like the government to cut the huge bills that no one is sure how they were stuck with in the first place. Slashing the $5 billion spent each year on housing asylum seekers, or the £9 billion on welfare payments for people with anxiety, would be a decent start.

But just as Labour can’t raise income taxes because it would be unpopular with the public, nor can it reduce the welfare bill or the asylum bill, because it would be unpopular with its backbenchers. The government’s confusion and lack of direction have led to a potentially fatal political paralysis.

It isn’t a ‘black hole’ that’s threatening the British economy. It is mediocrities like Rachel Reeves. The milkshake tax is proof there are fewer and fewer straws for the chancellor left to clutch at.

Hugo Timms is an editorial assistant at spiked.