UK Labour’s chancellor of the exchequer Rachel Reeves will deliver one of the most scrutinised and important budgets in decades on Wednesday. All eyes will be on her as she tries to find £30 billion down the back of Britain’s couch to plug a spending gap.
Back at the start of July, some doubted if she would be around to deliver the budget after the under-pressure chancellor was pictured crying in the House of Commons.
Ironically, that incident – she said it was a “personal matter” – may have strengthened her position, which is often touted as precarious. UK borrowing costs spiked when she cried, as markets fretted Ms Reeves could quit and take her fiscal discipline with her.
Almost five months on, Ms Reeves defiantly insisted to Labour backbenchers at a Monday meeting of its parliamentary party in Westminster that she was going nowhere: “I’ll show the media. I’ll show the Tories. I will not let them beat me. I’ll be there on Wednesday, I’ll be there next year, and I’ll be back the year after that.”
RM Block
The chancellor knows where she wants to be. But confused investors, employers and union bosses barely have a clue where they are, given the bewildering amount of leaking, pitch-rolling and backtracking in this autumn’s pre-budget run-up.
Labour gave a solemn pre-election commitment that it wouldn’t raise income tax rates. It was one of Ms Reeves’s “cast iron” fiscal promises. Yet the chancellor began openly hinting that she might have to raise income tax by 2p in the pound after all.
But in recent weeks, the UK’s independent fiscal watchdog, the Office for Budget Responsibility, told Ms Reeves that its forecasts suggested she needed to find £10 billion less than previously thought. The UK’s treasury (equivalent to the Department of Finance) soon briefed that – final answer – there really would be no income tax rises.
The acute sense of budget whiplash increased as Ms Reeves’s allies began running fiscal flags up every pole in Whitehall. There might be a gambling tax, or there might not. Possibly a bank profits levy, or possibly not. Tourist taxes, “mansion” taxes – kites flew ever higher, leading to political complaints that the pre-budget leaking had gone too far.
[ Reeves ditches plan to raise income tax, triggering gilt self-offOpens in new window ]
It seems most likely that Ms Reeves will go for a mixture of smaller tax rises, hidden in the folds of the ever-declining fat on Britain’s economy. Income tax thresholds will be frozen – bringing in more tax but allowing Labour to cling to the argument that it kept its promise.
A sugary foods tax will be expanded. Savings will be hit. Electric cars will be levied.
But what if, as widely predicted in Westminster, UK prime minister Keir Starmer faces a leadership challenge at the start of next summer? If he goes, the conventional wisdom is that surely Ms Reeves will too, assuming she hasn’t already gone before that.
What of Labour’s budget plans then? No matter which way she turns, Ms Reeves struggles to escape the brutal uncertainties enveloping UK politics.
