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Effective budgets propound a clear narrative against a complex economic backdrop. At the despatch box this afternoon, chancellor Rachel Reeves — delivering the first Labour budget in fourteen years — declared her intention to “invest, invest, invest”.
As expected, Reeves did not unveil an obvious budget “rabbit” and stayed true to the substance of the proposals already announced (covertly or overtly) in recent weeks. There was no out-of-the-blue tax cut or shock spending blitz. The intended message was that this budget, unlike some of its recent precursors, speaks to seriousness at the heart of government. “The era of rabbits is over”, a Labour source told the New Statesman this morning.
The approach meant there was no natural budget centrepiece — in the way that Jeremy Hunt, as chancellor, stressed the significance of two consecutive 2p cuts in national insurance at the 2023 autumn statement and 2024 spring budget. That, in effect, makes Reeves’ defining narrative — the overall budget story — even more significant.
And the tale Reeves told today was this: “My belief in Britain burns brighter than ever. And the prize on offer is immense. As the prime minister said on Monday – change must be felt.
“More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all, because that is the only way to improve living standards.”
The framing established, Reeves went on to announce that the minimum wage will be increased by 6.7 per cent to £12.21; that £1.8 billion will be provided to compensate the victims of the Post Office Horizon scandal; that £11.8 billion will be provided to compensate those infected and affected by the infected blood scandal; that fuel duty will be frozen next year; that £2.9 billion will be added to the Ministry of Defence budget; and that there will be a £22.6 billion increase in the day-to-day health budget — plus a £3.1 billion increase in its capital budget over the next two years.
With these measures, Reeves has delivered on Labour’s pledge that there will be no return to austerity. But the decision to invest in public services while balancing the books has meant that, in cash terms, this is the biggest tax-raising budget in history. The £40 billion headline figure beats Norman Lamont’s post-Black Wednesday budget in 1993 — worth around £38 billion in today’s money.
This £40 billion figure is comprised, for the most part, by the government’s plan to increase national insurance contributions for employers from 13.8 per cent to 15 per cent from April 2025. The government is also lowering the secondary threshold at which NI is paid from £9,100 to £5,000. In total, this will raise £25 billion a year, Reeves told MPs.
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On top of this, Capital gains tax is being increased. The government will raise the lower rate of CGT from 10 to 18 per cent and the higher rate from 20 to 24 per cent. Meanwhile, VAT will be introduced on private school fees from January 2025; the “non-dom” tax regime will be abolished; inheritance tax thresholds will be frozen for a further two years until 2030; and the windfall tax on oil and gas profits will increase to 38 per cent.
Along these lines, the Conservative counter-narrative contends that Reeves’ budget is actually a tax-raising, Halloween horror. And Rishi Sunak, for his final performance as Tory leader, gave voice to this sentiment today with furious passion.
Responding to the budget, the ex-PM seethed: “This is the truth: They have fiddled the figures, they have raised tax to record levels. They have broken their promises and it is the working people of this country that are going to pay the price.
“The chancellor and prime minister have tried to say that they had no choice but be in no doubt, their misleading claims about the state of the economy are nothing but a cynical political device.”
He added: “Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finance because if they truly were in such a dire strait as she has said, what we should have seen today is a significant reduction in borrowing to repair them, not the splurge she has just unleashed.”
The still-Conservative leader’s ferocious criticism speaks to the manifold political dilemmas Reeves faced this budget. As I have argued before, the chancellor today needed to fill the Treasury’s “black hole”, while working to limit any controversy surrounding the government’s revenue-raising measures — while ensuring Labour MPs are placated by more hopeful proposals — while signalling to the electorate the “change” really is beginning — and while ensuring that Labour continues to own the mantle of fiscal responsibility.
Finally, she needed to do so while keeping within the spirit, at least, of the narrow fiscal framework set out in the manifesto. And linking these considerations were cruel intertwining trade-offs and traps that the chancellor needed to delicately navigate. Reeves, in the end, didn’t just need to balance the books this budget — she needed to locate a sustainable equilibrium for a series of overlapping and competing political imperatives.
How did she fare according to these (effectively impossible) measures? Was she able to land a sharp and meaningful narrative that ties the budget package together — “tough decisions” and all?
The answers to these questions will form more fully over the coming weeks, months and years as this Labour government evolves according to Reeves’ announcements today. But Labour has, after months of relative drift, finally drawn its battle-lines. The political definition of this government is sharper still.
Indeed, as the budget war rolls into the media studios, Reeves has set some nasty traps for the Conservative Party and its next leader. As chancellor from 2010-2016, George Osborne promulgated the view that the government, empowered by the new Office of Budget Responsibility (OBR), always has the political advantage in economic debates because it sets the fiscal baseline. As such, if the opposition wants to do anything different, it has to explain what spending it is going to cut (if it wants to slash taxes, i.e the Tory trap), or what taxes it is going to raise (if it wants to boost spending, i.e the Labour trap).
Today, Reeves reset the baseline on fundamentally familiar Labour terms: she put more money “in the pockets” of workers and raised taxes on business. Now, it is up to the next Conservative leader to pick and choose what aspects of the budget to disagree with. As such, if one assumes the Conservatives will oppose the employer NI increase (a revenue raiser) — will they argue Reeves should take the money Labour has placed in the “pockets” of workers, out of the “pockets” of workers?
Moreover, given the Conservative Party claims that Reeves is “fiddling with the fiscal rules” in order to forward an expansionary fiscal policy — its next leader needs to go beyond the government’s baseline in advancing alternative measures. For Labour, finally on the right side of the fiscal divide after fourteen years, it is a joyous role reversal.
And Reeves expressed this view explicitly in her budget peroration this afternoon: “The choices I have made today are the right choices to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain.
“That does not mean that these choices are easy, but they are responsible. If the party opposite disagrees with the choices that I have made, then they must answer, what choices would they make?”
In the end, Sunak put in a strong final showing at the despatch box today. But when the rhetoric is stripped back, the pressure will be on the next Conservative leader to outline what they would do differently — and at whose expense.
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