Rachel Reeves raises the ghost of Denis Healey – the Labour chancellor bailed out by the IMF

In signalling a rise in tax, including the basic rate, Rachel Reeves is in danger of making the same mistake as another Labour chancellor half a century ago, says Simon Walters

Rachel Reeves loves to cast herself as the heir to Gordon Brown, the former Labour prime minister and chancellor credited with leading the world’s response to the 2008 global financial crash.

She was at it again in her pre-Budget speech at 11 Downing Street, underlining her “iron-clad” determination to sort out the nation’s finances.

But in using the event to give the clearest possible indication of looming tax rises later this month, seemingly including the basic rate, she risks being compared to a rather less revered former Labour chancellor.

Reeves’s justification for the need for tax rises is, essentially, the mess she says she inherited from the Conservative government a year ago, combined with world events.

That is an almost identical explanation to that presented by Labour chancellor Denis Healey half a century ago in his 1975 Labour Budget.

Denis Healey, the former Labour chancellor who asked the IMF for a bailout (Getty)

Like Reeves, Healey had been in charge of the Treasury for just over a year. Like her, he blamed the previous Conservative administration. Like her, his first Budget had failed to put things right and, according to critics, made them worse.

Which is how, in April 1975, Healey came to increase the basic rate of income tax from 33p to 35p in the pound.

He had already raised taxes for the rich, notoriously having previously vowed to squeeze the rich “until the pips squeak”.

That resulted in a top tax rate of 83 per cent, and an astonishing 98 per cent on investment income, leading to high earners leaving the country.

Remarkably, regardless of the many economic crises this country has faced since then, the basic rate has never been increased.

Instead, it has gradually been reduced to its present level of 20p.

All 14 chancellors who followed in Healey’s footsteps, Tory and Labour alike, viewed raising the basic rate as simply unthinkable.

Until the 15th, Ms Reeves, who appears set on breaking what some have called the “50-year basic tax rate taboo”.

Since we are led to believe she thinks it will solve her problems, it is worth recalling how the same approach turned out for her Labour predecessor, Mr Healey.

Like her, in his first year in office, under pressure from left-wingers in the Labour Party, he had backed away from implementing the kind of big public spending cuts many said were needed and had caved in to demands for large public-sector pay rises.

It is fair to point out that not everything in Reeves’s No 11 garden is as bleak as it was in Healey’s day: inflation is much lower and the economy is still growing, though only just.

But some things are worse, including the nation’s soaring debt as a proportion of its gross domestic product.

Healey’s decision to raise the basic tax rate was a last throw of the dice. But, as many predicted, it was not a magic remedy for the 1970s black hole in the nation’s finances, and things continued to go rapidly downhill.

So much so that it resulted in one of the most humiliating moments in modern British history – the fateful day in 1976 when Healey and the Labour government had to beg the International Monetary Fund (IMF) to bail out Britain.

Healey then belatedly imposed the huge public spending cuts that he – and Reeves today – had tried to avoid. And the economy gradually recovered.

But there was no happy ending for Healey and Labour, which lost the 1979 election to the Conservatives under Margaret Thatcher, who came to power on a tax-cutting agenda.

Labour was out of office for two decades.

Reeves’s claim yesterday that she retains an “iron-clad” will to put Britain on the road to recovery has never sounded less convincing.

If she suffers the same fate as Healey, her reputation will be clad in ignominy.