Rachel Reeves will pledge to “rebuild Britain” with her first budget, an historic moment that will include a major package of tax hikes and extra borrowing likely to define British politics for the rest of the decade.
Reeves, the first female Chancellor of the Exchequer in the 800-year history of the role, is expected to set out about £35 billion in tax rises and spending cuts in the House of Commons on Wednesday, along with a reshaped fiscal rule to give her the space to borrow more for public investment.
“The only way to drive economic growth is to invest, invest, invest,” Reeves is due to say in her fiscal statement, according to remarks pre-briefed by the UK’s ruling Labour Party. “The prize on offer today is immense.”
It is a high-wire moment for both Reeves and Prime Minister Keir Starmer, as they seek to recover from a sharp polling slump since Labour won power in July and try to set up another election win in five years’ time. Central to Reeves’ plan is a raft of tax increases to cover a £22 billion fiscal hole she says she inherited from the previous Conservative administration, and also to fund more spending on public services including the National Health Service and childcare.
Yet tax rises are politically risky because of Labour’s repeated election pledge not to increase levies beyond a limited few in its manifesto. The government is braced for criticism that it is due to break its promise not to increase taxes on “working people,” with Reeves set to hike the national insurance payroll tax for companies which is also paid by owners of small businesses.
The Treasury said Tuesday the minimum wage will rise by an inflation-busting 6.7% next year, a move that helps Reeves argue working people are protected.
Other measures expected in the budget include:
Another potential risk for Reeves is how markets react to her plan to ramp up government borrowing to invest in capital projects. The chancellor has said she will change the debt measure she targets for one of the government’s fiscal rules — which requires debt to be falling as a share of the economy in five years’ time — potentially giving her space to borrow as much as an extra £70 billion over the course of Labour’s term in office.
UK borrowing costs have risen in anticipation of the extra debt issuance, and markets are watching closely for the details of her investment plans.
Reeves will draw parallels with other famous budgets in Labour’s history, citing the challenges it faced in 1945, 1964 and 1997 as comparable moments when the party also came into power after a period in opposition.
“This is not the first time that it has fallen to the Labour Party to rebuild Britain,” Reeves is due to say her statement. “Today, it falls to this Labour Party, this Labour government, to rebuild Britain once again.”
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