At 77 minutes, Reeves’s budget was longer than any in the last 14 years, and longer than the last one delivered by a Labour chancellor, Alistair Darling. Her top line was this: “The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest … we must restore economic stability and turn the page on the last 14 years.”
Here’s how she tried to do it, and how it was received.
The detail: big tickets, little rabbits
Among the well-trailed major changes that formed the brunt of the budget, there were a couple of smaller surprises as well – maybe not quite rabbits, but at least a couple of voles with which to amaze voters. Jasper Jolly and Peter Walker set out the key points here.
Some of the big-ticket items that we knew were coming: an increase in employers’ national insurance contributions, worth £25bn a year by the end of this parliament; an increase in the higher rate of capital gains tax from 20% to 24%; VAT on private school fees; a new rule allowing borrowing of up to £50bn over the next five years to invest in major infrastructure; a 6.7% rise in the minimum wage; and a £22.6bn increase to the NHS budget.
The biggest surprise was that Reeves decided not to extend the Conservatives’ freeze on tax bands, which has meant that many people pay a higher rate of tax on some of what they earn if their salaries merely rise in line with inflation. She did, however, maintain the freeze on fuel duty – when giant cockroaches rule the earth in the year 6000, they will still be paying 52.95p a litre – and reduced duty on draught alcoholic drinks, meaning, as she said, “a penny off a pint in the pub”.
Taken together, the OBR says, the budget increases spending by £70bn a year. Two-thirds of that will go on current spending, and one-third on capital spending. Ben Zaranko of the Institute for Fiscal Studies noted that the real-terms growth in public service funding of 1.5% a year “isn’t particularly generous”, and the plans amounted to “a short-term cash injection, with a promise of belt-tightening in the future”.
Meanwhile, the OBR says tax receipts will increase by £36.2bn a year from next year; while that is a record as a share of GDP, 38%, John Burn-Murdoch of the FT points out that the same thing is true almost everywhere. Borrowing will be up by £32.3bn. Public investment will average 2.6% of GDP over the course of the parliament, against 1.7% under the plans set out by Jeremy Hunt in the spring.
The impact: a growth spurt that may tail off
The Guardian has a budget calculator that will help you figure out if you will be better or worse off as a result of the changes announced by Reeves. And here are some case studies that illustrate how they will affect different groups. You can see a reasonably positive response from voters in Reeves’ constituency here, and a more negative view from employers here.
The Treasury’s impact assessment (pdf) suggests that the measures announced by Reeves will have the greatest direct benefit for the poorest, and cost the richest the most: when benefits from public services are taken into account, the bottom decile of income distribution will see a 3.5% improvement against their net income, while the top decile will see a 0.5% reduction.
The OBR forecasts slightly stronger growth over the next couple of years, largely because the budget is expected to stimulate demand – but it says that growth will then tail off over the last three years of the current parliament, and actually slow against previous expectations. The size of the economy would be “largely unchanged” in five years’ time, it adds. Such forecasts are usually a bit off – but if this one proves broadly correct, it would leave Labour a long way off its promise of “the highest sustained growth in the G7”.
The Tories’ reaction: ‘Broken promise after broken promise’
In his last major appearance at the dispatch box, Rishi Sunak had two main messages: Labour has broken its pledge not to raise taxes on working people, and the fallout is Reeves and Starmer’s responsibility, not his and Hunt’s. He said the budget contained “broken promise after broken promise”, and amounted to a betrayal of Starmer’s pledge to restore trust to British politics.
He also hotly contested Reeves’s characterisation of a dire economic inheritance, arguing that the chancellor had inherited lower borrowing than other major economies and the second-lowest debt in the G7. “Labour’s claims about their inheritance are purely ludicrous,” he said. “These are her choices, so stop blaming everyone else and take responsibility for them.”
“Broken promises” appeared to be the take that many other Tory MPs wanted to hammer home on social media. Meanwhile, Conservative leadership candidate Robert Jenrick called it “the biggest heist in modern history”, and his rival Kemi Badenoch said it was a plan that amounted to “higher taxes, more borrowing, and lower growth”.
The markets’ reaction: cost of government borrowing increases
When Reeves started to speak, the cost of government borrowing on international markets fell a little. But as she set out her plans, the 10-year gilt yield – a measure of how much the exchequer pays on its debt – climbed to 4.39%, the highest it has been in five months.
That impact was to be expected, and can be understood as the natural price of seeking to borrow more to fund investment. And it was somewhat blunted by the government’s efforts to prepare the ground for its plans by pre-briefing them so extensively.
In the Times (£), Panmure Liberium chief economist Simon French concluded that ultimately, the “initial reaction of financial markets will trigger huge sighs of relief in the Treasury and at the Bank of England”. The Guardian’s Larry Elliott characterised the change to borrowing costs as “modest” and said that they did not amount to a major threat.
The impact is not on the scale seen after Liz Truss’s 2022 mini-budget, a cost memorably described as the “moron premium”, perhaps because investors are broadly convinced that Reeves will stick to her fiscal rules and the UK will be good for the money. But it does mean that the pressure on those investments to deliver long-term economic benefits is even higher.
The left’s reaction: some progress, but disappointment
While there was a broad welcome on the left for the chancellor’s decision to borrow more to fund investment, many criticised the government for not going far enough on this or a range of other changes.
In this panel of reaction, the political economist Sahil Dutta argues that “despite progress on public investment, Labour’s budget still reflects a failed status quo”. He says that Reeves’s new fiscal rules will funnel money towards the developers who will get the infrastructure contracts, while the workers who are critical to sectors like social care and the NHS are undervalued.
Hannah Peaker, director of policy at the New Economics Foundation, similarly applauded the change on borrowing but said Reeves had not gone far enough. “In one sense, I welcome her courage in challenging and changing the fiscal rules that have been holding us back,” she told the BBC. “On the other hand, I wish she’d had more courage in challenging the very wealthiest in our society to pay their fair share … It was a real missed opportunity to do that.”
And on ITV’s Peston last night, former shadow chancellor John McDonnell said that “They’ve thought, we can tackle the health service, people will forgive us in terms of the tax rises that have taken place, and I can understand that political gamble. But there’s so much more.”
