LONDON — British Treasury chief Rachel Reeves will deliver her first budget in Parliament on Wednesday, a tightrope act that aims to find billions for investment through borrowing and tax hikes without roiling businesses or raising taxes on working people.
It’s the first budget by a Labour Party government in almost 15 years, and the first ever delivered by a female finance minister. It could set the tone for the length of the current parliament, which runs until 2029, and the party’s ability to win a second term at the next election.
Reeves, who left her offices at No. 11 Downing Street with the famous red briefcase that contains the budget in hand, has a tough balancing act.
She has pledged to put “more pounds in people’s pockets,” give a much-needed financial boost to public services, such as schools and hospitals, and get the economy growing. All this has to be done within the confines of stretched public finances, which the government has said are in a much worse state than thought when it was elected in July.
Prime Minister Keir Starmer has warned that the budget will reflect “the harsh light of fiscal reality” but that there will no return to the austerity that marked the early years of the previous Conservative government after it was first elected in 2010.
The center-left Labour Party was elected July 4 after promising to banish years of turmoil and scandal under Conservative governments, get Britain’s economy growing and restore frayed public services, especially the state-funded National Health Service.
The center-left government argues that higher taxes and limited public spending increases are needed to “fix the foundations” of an economy that it argues has been undermined by 14 years of Conservative government.
The Conservatives say they left an economy that was growing, albeit modestly, with lower levels of debt and a smaller deficit than many other Group of Seven wealthy nations.
Pumping money into health, education and housing is a priority of the new government, made harder by a sluggish economy, hobbled by rising public debt and low growth. The government also says there is a 22 billion pound ($29 billion) “black hole” in the public finances left by the Conservative government.
That means the budget is certain to include tax increases — though Labour has pledged not to raise the tax burden on “working people,” a term whose definition has been hotly debated in the media for weeks. The Treasury has announced that about 3 million of the lowest-paid workers will get a 6.7% pay increase next year, with he minimum wage rising to 12.21 pounds ($15.90) an hour.
Reeves — Britain’s first female chancellor of the exchequer, a position that has existed for some 800 years — is widely expected to tweak the government’s debt rules so that she can borrow billions more for investment in the health system, schools, railways and other big infrastructure projects, and to raise money by hiking tax paid by employers, though not employees.
“The U.K. is at a critical juncture: after years of sluggish growth and deteriorating public infrastructure, a sustained rise in government investment is vital to promote long-term growth and boost living standards,” said Monica George Michail, an economist at the independent think tank The National Institute of Economic and Social Research.
Though the budget is set to be one of the most consequential in years, Reeves will no doubt be careful not to cause concern in financial markets. Two years ago, the short-lived premiership of Liz Truss foundered after a series of unfunded tax cuts roiled financial markets and sent borrowing costs surging. Her successor Rishi Sunak sought to get a grip on the public finances but was unable to dislodge the notion that the Conservative Party had lost control of the economy, arguably the biggest reason why it suffered its worst election defeat in 200 years.
In the run-up to the budget statement, the U.K.’s borrowing costs in the markets have edged higher, suggesting there is some unease about the path ahead.
