ON WEDNESDAY AFTERNOON, RACHEL REEVES will walk out of 11 Downing Street with the Red Box in her hand and a fixed, careful smile on her face. The photographs will say: historic first Labour chancellor in more than a decade, “iron discipline”, grown-ups back in charge. The spreadsheets inside will tell a harsher story: a government that won power promising renewal, and has instead inherited the job of managing decline.
This Budget was meant to be Labour’s turning point. After the chaos of the Truss mini-Budget and years of exhausted Tory firefighting, Reeves promised something simple and reassuring: stability, competence, “securonomics”, a state that works. Instead, she has arrived at what one think tank calls a “make-or-break Budget” shaped by low growth and a £20–30 billion hole in the public finances. It is very hard to build renewal on a crater.
The hole itself is largely the work of the Office for Budget Responsibility. In late October the OBR quietly informed the Treasury that it would downgrade the UK’s trend productivity growth by around 0.3 percentage points, wiping an estimated £20–£30 billion off the five-year outlook. The Institute for Fiscal Studies reckons every 0.1-point cut adds about £7 billion to borrowing. In one stroke, Reeves’s already thin “headroom” — the buffer between her plans and her own debt rule — effectively vanished.
“Labour has won the right to govern, but this Budget reads like a manual for managing decline rather than reversing it.”
It is worth stressing how strange this is. Last October, in her first fiscal event, Reeves pushed through roughly £40 billion of tax rises, including a £25 billion payroll-tax raid on employers, which the Resolution Foundation describes as the biggest discretionary tax rise in modern times. That raid has coincided with unemployment rising to a post-pandemic high, and yet, after all that pain, the Times now calculates that her headroom is not just small but negative – roughly a £10 billion shortfall once the OBR’s gloom is factored in.
Britain has drifted into what the Times calls an “obsession with headroom”, where flickers in a forecaster’s spreadsheet force real-world cuts and tax hikes. Reeves is trapped inside that machine. She could choose to challenge the framework, to rewrite the rules, to say openly that a country with broken infrastructure and 20-year-low productivity cannot be run as if it were a family on a tight energy bill. Instead, she has chosen to prove that Labour can be better at playing the Treasury’s game than the Conservatives ever were.
The result is something almost no one will love. The Resolution Foundation calls it a “consolidation Budget”: not a great leap forward, but a careful tightening of belts. The Institute for Government says the real test is whether she can present a coherent tax strategy rather than a scatter of ad hoc levies. From the leaks and pre-briefs, the emerging picture looks less like a strategy and more like a rummage through every pocket in the fiscal house.
Start with the promise Labour made not to raise income-tax, VAT or National Insurance “for working people”. The headline rates may indeed stay put. But the Guardian and MoneyWeek both report that Reeves plans to extend the freeze on income-tax thresholds for at least another two years, possibly out to 2030, dragging millions more into higher bands. Quilter, a wealth-manager, calculates that even a pensioner on nothing but the full state pension could be paying over £200 a year in income tax by 2029–30 if thresholds stay frozen while benefits creep up. The taxman will not ring the doorbell; he will simply let inflation do the work.
“On paper, tax rates stand still; in real life, frozen thresholds do the dirty work that no chancellor wants to spell out aloud.”
This is why “no tax rises” will feel like a lie on the ground. Freezing thresholds is the purest form of stealth tax: it relies on people not following the small print. Labour will say it has kept its pledge on rates. Voters will look at their payslips and see more going to HMRC. The OBR, dutifully neutral, will simply note that fiscal drag now accounts for billions in extra revenue.
Then there are the “wealth-side” measures that Reeves hopes will show Labour is on the side of workers, not rentiers. Here the Budget is expected to unveil a de facto “mansion tax” via council-tax revaluation at the top end, raising up to £450 million from high-band homes, alongside tighter rules on inheritances and lifetime gifts. Capital-gains tax and pensions reliefs are also in the crosshairs; ISA allowances for tax-free saving are set to be cut from £20,000 to perhaps £12,000, with the clear intention of pushing cash-savers into riskier stocks and shares.
These moves will delight some on the Labour left and parts of the commentariat that have long wanted a sharper tax on static wealth. But politically they are fraught. The “mansion tax” will hit not just oligarchic townhouses but large, mortgage-laden family homes in London and the South East — precisely the sort of seats Labour needs to hold to stay in power. Finance bosses are already warning that hacking at ISA allowances could push up mortgage rates and undermine household saving. Labour risks looking like a government that attacks prudence while leaving the deeper structure of British inequality untouched.
“This is not a programme for take-off; it is a flight plan for staying airborne on one engine over an ocean of debt.”
Around this core sits a halo of what one Guardian piece simply described as “a dozen small, risky tax rises”. There will be an expanded sugar tax on milkshakes and pre-packed lattes, a new gambling levy, a proposed pay-per-mile charge for electric vehicles, a private-hire vehicle tax, new powers for councils to levy tourism taxes, and a bundle of clampdowns on salary-sacrifice schemes and Motability perks. It is fiscally rational to collect revenue where behaviour is price-sensitive. It is politically disastrous to look like you are nicking a pound here and a fiver there from every corner of everyday life.
Spending, meanwhile, is where the real pessimism lives. Reeves has promised that there will be “no return to austerity”. Yet the numbers tell a different story. The IFS points out that to satisfy her rule that debt must be falling as a share of GDP in five years’ time, Reeves has pencilled in steep departmental spending restraint after 2029, slashing planned growth from 1 per cent a year to about 0.5 per cent. The Treasury has briefed that this will save £2.8 billion, thanks to such miracles as ending asylum-hotel use, cracking down on “fraud”, abolishing police-and-crime commissioners and laying off thousands of civil servants. Economists, including those at the IfG, call these numbers “unlikely” and “undeliverable” in private; in plainer language, they look like fantasy.
What this means in practice is that the NHS, schools and defence will be shielded; almost everything else — courts, local government, further education, border security — will be squeezed yet again. The councils that are already teetering towards effective bankruptcy will see no great lifeline. Backlogs in the justice system will not magically vanish. The further-education colleges that are meant to drive Labour’s skills revolution will be left to patch together budgets from crumbs. Britain’s public realm is being hollowed out more slowly than under George Osborne, but it is still being hollowed out.
“For the bond markets, this is a sensible, disinflationary Budget; for everyone else, it is a long, low ceiling on their ambitions.”
On welfare, Reeves has chosen the morally defensible and fiscally awkward route. Scrapping the two-child benefit cap — a long-standing demand of anti-poverty campaigners — will lift hundreds of thousands of children above the poverty line over time. It will also cost billions over the forecast period, adding to the pressure to find “savings” elsewhere, not least through the heavily briefed crackdown on benefit fraud and sanctions for the long-term sick. The danger is that Labour ends up with the worst of both worlds: a progressive flagship policy overshadowed by a harsher tone towards the very people using the welfare state.
The cost-of-living measures are more obviously popular. The national living wage is set to rise by 4.1 per cent to £12.71 an hour, with an even bigger jump for 18–20-year-olds. Rail fares and fuel duty are expected to be frozen again, and Reeves will shift some green levies off energy bills and into general taxation. Millions of low-paid workers will feel an immediate benefit; drivers will avoid the “hammer blow” of a fuel-duty hike that motoring groups and tabloids were already campaigning against.
But even here, the ground is less firm than it looks. The same low-to-middle earners who gain a modest wage or bill boost will also be dragged into higher tax bands by the threshold freeze. The gains from cheaper rail tickets will sit alongside new costs on cars, sugar, holidays and possibly ISAs. MoneyWeek notes that the Budget is likely to be disinflationary, helping the Bank of England cut rates sooner, but warns that the overall consolidation could knock about 0.3 percentage points off growth in the medium term. For families, that translates into the dull ache of stagnant wages and over-stretched services.
Above all this hangs the bleak macro picture. The Guardian reports that the OBR has downgraded UK growth in every single year out to 2030–31, making this the most pessimistic forecast in its 15-year history. The TUC notes that even by 2029–30, debt is expected to be around 96 per cent of GDP, far above the pre-crash era and miles away from Osborne’s abandoned target of 67 per cent by 2015–16. In other words, Britain is now a permanently high-debt, low-growth economy trying to behave as if it were a lean, mean Northern European state.
The union movement blames the OBR. TUC general secretary Paul Nowak has accused the watchdog of becoming “a straitjacket on growth”, clinging to models that treat public investment as if it crowds out private activity, and demanding restraint precisely when the economy is weakest. Inside Labour, briefings to the press have made clear that Reeves and her team are furious that the downgrade landed after Jeremy Hunt’s pre-election tax cuts but before their own Budget. Yet Reeves has chosen not to confront the OBR head-on. She will grumble, but she will comply.
“The Red Box will close on Wednesday, but the spreadsheet politics inside it will haunt every council chamber and classroom for years.”
That choice has consequences for Labour’s politics. In the days before the Budget, the Guardian reported that Reeves was pleading with Labour MPs to back her “make-or-break budget”, even as left-wingers agitated for a wealth-tax and unions demanded a bigger living-standards push. The party’s right worries that she is drifting into a tax-and-spend caricature; its left worries she is locking them into another lost decade for public services. Trying to hold that coalition together while also reassuring markets is a neat trick. It is not obvious that anyone can pull it off.
For ordinary voters, none of these subtleties will matter. They will remember that in her first Budget Reeves imposed record tax rises, and in her second she has returned with more thresholds freezes, new levies and stealthy grabs at savings and property. They will still see councils closing libraries and cutting care, courts listing cases years in advance, GPs and hospitals overwhelmed. The story that “Labour is the party that raises your taxes and still can’t fix anything” will write itself, and the Tories and Reform UK will happily narrate it.
Markets, paradoxically, may be the least of Reeves’s problems in the short term. A Budget that is broadly disinflationary, that leans into consolidation and that signals fealty to OBR orthodoxy will probably go down well with bond investors. MoneyWeek explicitly notes that such a package could accelerate the timetable for interest-rate cuts. The IfG, too, cares more about coherence than generosity. If the numbers add up, the City will give her a pass.
The deeper risk is that the numbers only appear to add up because of heroic assumptions about future spending cuts and “efficiency savings” that no one seriously expects to be delivered. The Institute for Government has warned against precisely this habit: pretending that someone else, in another parliament, will swing the axe. If that is the path Reeves chooses, we are simply kicking today’s pain into tomorrow’s politics, and Labour will still own the hangover.
This, in the end, is why this Budget looks so bleak for Labour. The party won power promising to “turn the page” on a broken economic model. Instead, it is being forced to write footnotes to the same story: high debt, low growth, tight rules, nervous markets, and a Whitehall machine that seems able to talk only in the language of restraint. Reeves may be a more competent narrator than her predecessors, but the plot has not fundamentally changed.
“Labour has become custodian of a settlement it once vowed to overturn: high taxes, low growth and public services permanently on the brink.”
There is a melancholy symmetry here. It was the Conservatives, through austerity, Brexit and a decade of under-investment, who dug the hole. It is Labour that will now stand at the dispatch box and announce that the country cannot afford the very repair work it elected them to do. The OBR will be blamed in Westminster. Out in the country, people will simply say that Labour promised something better and delivered more of the same.
When the headlines fade, what will be left is not the one-day drama of Budget graphs but the slow grind of lived experience: pay packets that feel lighter, services that feel thinner, a sense that politics has run out of big answers and retreated into clever tweaks. If Reeves’s Budget “succeeds”, it will do so by proving to the bond markets that Britain can live indefinitely in this limbo.
That is why, for Labour, this looks like a shambles in the making. Not because the Red Book won’t balance — it will, more or less — but because the Budget cements a role that no party can happily occupy: custodian of managed decline. Reeves may steady the ship. But the story she is about to tell the country is not one of lift-off. It is of a nation that has accepted gravity, and of a government that has won the right not to escape it, but to administer it more neatly. ∎
