“`html
The culmination of months of preparation, this Budget has been a long time in the making. Those who feel the process has been protracted are not mistaken.
This isn’t solely due to the fact that, by one senior MP’s reckoning, the government has already prefigured no fewer than 13 distinct tax proposals ahead of the formal unveiling of the final decisions.
Nor is it simply the result of a growing number of reports from various think tanks and research groups, offering suggestions that have also captured media attention.
The budget process itself has been underway for several months.
Chancellor Rachel Reeves initiated the planning in July with her first meeting with aides at the Treasury.
“Everyone was getting ready to open up the Excel,” one aide recalled, but Reeves stated she wanted to forgo spreadsheets and Treasury scorecards.
Instead, she preferred to begin by determining how to achieve her top three priorities, which she subsequently outlined on Treasury letterhead.
Those priorities – reducing the cost of living, cutting NHS waiting lists, and lowering the national debt – will remain her focus in the coming week.
These messages are directed to the voting public, and each contains an implicit message to the financial markets: control inflation, maintain substantial spending on public services, protect long-term cash for infrastructure projects, and manage spending to address the nation’s significant debt.
Reeves’s team is confident that the chancellor will successfully address all three priorities on Wednesday.
However, there is a palpable sense of apprehension within her party, and skepticism among rivals and businesses, that Reeves’s second budget will be constrained by political considerations and inherent contradictions.
Reeves will likely acknowledge the constraints she faced even before assuming her role as chancellor.
Substantial debts, high taxes, and years of austerity in certain sectors have left some public services under-resourced. While arguments about the past may lose their impact,
“Everyone accepts we inherited a bad position,” one senior Labour figure stated, “but it’s only right that people expect to see things improve.”
Some constraints on Reeves’s choices stem from within the Labour party itself.
The original election manifesto pledged to refrain from raising the three major taxes – income tax, National Insurance, and VAT – effectively limiting potential revenue streams.
Furthermore, the early, somber messaging from the government has had a real-world effect, with a widespread understanding that the situation will worsen before it improves.
In last year’s budget, Reeves allocated only £9 billion of “headroom” – a financial cushion to protect the government in the event of unforeseen economic challenges, which, indeed, have materialized.
Lord Bridges, a former Treasury minister, remarked in the Lords: “This is not a fiscal buffer; it is a fiscal wafer, so thin and fragile that it will snap at the slightest tap.”
The wafer has been compromised by the Office for Budget Responsibility’s assessment that the economy is underperforming previous expectations, leaving the chancellor with diminished financial resources.
You can read more about what means here.
The scale of the national debt further restricts the government’s ability to borrow additional funds.
However, the most significant limitations on Reeves’s scope for cuts, spending, or borrowing derive from the present political climate: the government’s unpopularity among its own backbenchers and a perceived lack of strong leadership.
Downing Street has demonstrated a willingness to abandon cost-saving measures in the face of sufficient opposition from its rank and file.
Prime Minister Sir Keir Starmer and Reeves were compelled to reverse planned cuts to the winter fuel allowance in 2024 and to welfare programs earlier this year. Expectations for additional financial assistance are also present.
One senior MP stated, “They need to increase the headroom, do something big on energy costs, and they have to do something for the soft left on [the] two-child cap – they have walked people up the hill.”
While costly, Labour MPs anticipate a partial reversal of benefit limits for large families and assistance with energy bills.
Some members of the government find this deeply frustrating. One individual shared that Labour backbenchers “want everything for nothing – we should be the adults driving the car, not the kids in the back.”
As Reeves received the finalized figures for her significant budget presentation on Friday, multiple sources highlighted other governmental decisions that complicate her mission – areas where Labour’s actions appear contradictory or to undermine its stated objectives.
On occasion, the chancellor, with the prime minister’s backing, has emphasized that stimulating economic growth and supporting business are their paramount priorities.
However, the decision to increase the cost of hiring additional staff by raising National Insurance contributions was perceived by many firms as counterproductive, with reports suggesting that higher staffing costs hinder business growth.
Ministers may have touted their desire to reduce regulation, and with over 80 regulatory bodies in place, that desire is understandable.
Nevertheless, significant new protections for workers are being introduced, thereby increasing regulation.
Labour pledged to provide political stability following years of Conservative turmoil. While the party is not currently experiencing the rapid turnover of prime ministers seen previously,
constant reorganizations within No. 10, public questions about Sir Keir’s leadership, and intense speculation regarding impending budget decisions do not align with the stated aim of ending the political drama.
Specific instances also exist. During her last appearance on the program, Transport Secretary Heidi Alexander promised increased support for consumers to purchase electric vehicles, making them more affordable.
Yet, as Alexander prepares to return to the studio, the chancellor is rumored to be introducing a new pay-per-mile charge for electric vehicles, potentially increasing their cost.
Late on Friday, discussions were still ongoing in Whitehall regarding adjustments to the tax regime for oil and gas companies, with some ministers advocating for a less stringent approach to prevent firms from withdrawing from the North Sea and redirecting their investments in renewable energy elsewhere.
The inherent contradiction lies in Labour’s promises of reduced bills and numerous job opportunities if energy firms accelerate their transition to green power.
The tax, increased last year, could drive some of those same companies away, jeopardizing the promise of future growth. No government maintains complete policy consistency across the board.
In an organization managing over a trillion pounds annually and making thousands of decisions weekly, it is unrealistic to expect perfect alignment with overarching objectives.
However, even among Sir Keir’s supporters, a frequent complaint about this government, as we’ve discussed extensively, is a perceived lack of clarity regarding its broader purpose.
One frustrated senior figure confided, “What are we all actually doing here?”
Pressure from financial markets limits the chancellor’s borrowing capacity, while Labour’s backbenchers would resist significant spending cuts. Furthermore, substantial tax increases are unlikely to appeal to a restless public and an unpopular government.
The realities of politics often impede governments from making sound economic choices, while the realities of economics often impede governments from making the best political decisions.
On Wednesday, Reeves will need to reconcile these competing demands, presenting a set of choices that will influence this government’s future.
BBC InDepth is the home on the website and app for the best analysis, with fresh perspectives that challenge assumptions and deep reporting on the biggest issues of the day. You can now sign up for notifications that will alert you whenever an InDepth story is published – click here to find out how.
British Steel says the deal, to be announced by Sir Keir Starmer, will “create jobs in Scunthorpe”.
Anas Sarwar said the UK’s “broken immigration system” needed to be fixed, and better wages were needed to attract Scottish workers.
The owner of a Hammersmith pub fears closure if the chancellor raises taxes in the upcoming Budget.
Two men who have experienced homelessness give their views ahead of the chancellor’s budget.
The PM tells the BBC he has made “good steps” on the cost-of-living but it will take time to turn the country around.
“`