It’s the long-awaited Budget week. The Chancellor's statement on Wednesday will serve as a crucial test for a government which is just a few months old but whose honeymoon period has long since passed. Atticus will be providing in-depth analysis of the contents of Labour's first fiscal statement in nearly fifteen years.
Speaking this morning in Birmingham, Prime Minister Keir Starmer outlined plans to strengthen the British economy, reform public services, and improve life for working people. He emphasised Labour’s focus on economic stability, infrastructure, the NHS, jobs, public safety, and climate action, aiming to "fix the foundations" for sustainable growth.
The Prime Minister has received heavy criticisms for a pessimistic style of leadership that has appeared to many a far cry from his promise to “relight the fires of optimism” in the run-up to the election. He has taken multiple unpopular policy decisions such as doubling down on the two-child benefit cap and stripping millions of pensioners of a winter fuel payment by introducing strict means testing. Alongside a list of controversies affecting Labour MPs (most recently Mike Amesbury, who was filmed launching a seemingly unprovoked attack on a constituent over the weekend), this has left already half of Britons disappointed in the Labour Government so far.
Labour needs a good news story to perk up its approval ratings and restore the feeling that ‘things can only get better’ after years of austerity followed by a pandemic and cost-of-living crisis.
The Budget, unfortunately, is unlikely to be that story.
For months, Chancellor Rachel Reeves has forewarned of a £22 billion black hole in the fiscal finances left by the Conservatives. The figure reflects projected overspend of departmental budgets this year, according to an audit commissioned by the Chancellor upon entering office in July. The Shadow Chancellor, Jeremy Hunt (for whom this will likely be his last fiscal statement in post) branded this accusation as “nonsense”, while the non-partisan Institute for Fiscal Studies (IfS) accused both parties of a “conspiracy of silence” regarding the true scale of the fiscal challenges facing the UK in the election campaign.
In either case, the £22 billion figure doesn’t bode well for a government that pledged to raise only £8.5 billion in its manifesto and borrow another £3.5 billion, while simultaneously promising transformational investments across the board. The iron-clad election pledge not to raise taxes on working people via the three biggest taxes (income tax, national insurance, VAT) has further tied the Treasury’s hands behind its back.
So where will the Chancellor find the money to fill the black hole and pay for Labour's manifesto pledges?
The Chancellor has warned of ‘difficult decisions’ in the Budget. This includes potentially introducing national insurance on employers’ pension contributions to raise £15.4 billion. While the policy is a cunning way to raise taxes without breaching their promise of raising taxes on ‘working people’, many will see the wordplay as trickery that ultimately still amounts to a raid on their pockets.
The Government is aware that each tax rise or cut to services damages its approval ratings. The Winter Fuel Payment cut, for example, triggered an almighty backlash and will only save about £1.4 billion a year.
Far more preferable is to find ways to bend its strict budgetary policy that allows for more borrowing. Speaking at the International Monetary Fund (IMF) in Washington DC on Thursday, the Chancellor confirmed that the Budget will include a new method for assessing the UK’s debt position in order to borrow more for long-term capital investment. Reeves says this move will free up to a whopping £50 billion to fund projects, such as those outlined in Great British Energy’s blueprint for long-term energy infrastructure released last week.
So maybe there is yet hope that this Budget won’t be the same doom and gloom that has thus far clouded Labour’s grandiose promises of ‘Change’.
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