I have now heard so many Labour people quiver that Rachel Reeves’ looming budget is a “make or break” event that I’ve given up counting. Whether or not it will deserve such hyperbolic billing, it is certainly true that the first Labour budget in 14 years is the most significant moment since the election, both for the chancellor’s reputation and the standing of the government as a whole. When Ms Reeves gets up before the Commons on 30 October, she will do so accompanied by a great weight of expectation.
“It’s massive,” says one member of the cabinet. “Hugely important,” agrees another. “It sets the course for the rest of the parliament.” A third senior minister describes it as “a milestone budget” with “several big jobs to do”. The first is to clear the decks of the dire fiscal legacy left by the Tories. The second is to do what she can for dilapidated public services. The third challenge, the most critical for the long term, is to change the arc of Britain’s story by putting the country on a trajectory towards higher growth. No pressure then, chancellor.
Land the budget well and Ms Reeves will settle nerves about the economy and give the government a clearer sense of direction while – or so her colleagues hope – drawing a line under a damaging period dominated by the debilitating dripfeed of revelations about freebies and nasty office politics at Number 10. Land the budget badly and the unravelling we’ve seen in recent weeks will get more dangerous. One Treasury insider remarks: “Every budget has a lot of risks to it – and this one is a huge budget.”
The interminably long build-up to the event is a consequence of the chancellor ordering an audit of the inheritance from the Tories before she did anything else, arm-wrestling between the Treasury and spending ministers over departmental funding, and the Office for Budget Responsibility then needing time to mark the chancellor’s maths. Politics abhors a vacuum. It has been filled with endless rumour-mongering. The appetite for speculation among journalists has been fuelled by hints and winks, nudges and steers from ministers and their aides about what might be coming. The rightwing media has been straining to curdle the blood of affluent Britons by telling them that Ms Reeves will squeeze their pips until they squeak. The Conservative party is itching for an “I told you so” moment when it can claim vindication for its pre-election warnings that Labour would hike taxes more than it was prepared to admit during the campaign. The chancellor will be entitled to puncture their hypocritical posturing by reminding everyone about the Tory legacy: national debt as a proportion of GDP at its highest level since the early 1960s and the tax take as a share of national income at its largest since the late 1940s. She also has excellent grounds for arguing that tough decisions are demanded because the fiscal plans left by the previous mismanagement were works of fiction. There’s scope for argument about the precise size of the “black hole” bequeathed by the Conservatives, but it is a debate about whether it is gigantic or merely enormous.
While she can scornfully shrug at Tory criticism, the chancellor will be more nervous about the reception she will receive from the debt markets. She has been signalling an intention to recast the fiscal rules to allow more scope for capital investment on infrastructure projects designed to enhance Britain’s economic potential. She’s flagged this in advance to test how much more government borrowing will be tolerated by the vigilantes of the bond market before they throw a wobbly about UK debt. Treasury officials sometimes liken increasing debt to feeling your way towards a cliff edge in a blindingly dense fog. A government only discovers when it has stepped over the precipe when it suddenly finds itself plunging into the abyss. The unquiet ghosts of Liz Truss and Kamikaze Kwarteng, authors of the disastrous meltdown of two years ago, still haunt the corridors of Great George Street. A repeat of that kind of catastrophe would be career-destroying for Ms Reeves. “Borrowing spree” is not the kind of headline she is seeking to generate. So my hunch is that the chancellor is going to be relatively cautious about how far she relaxes the rules on debt.
While keeping a wary eye on the bond market, she also has to watch out for dissent from within the cabinet. When Labour was in opposition, she didn’t have too much trouble from colleagues who accepted she had a veto over spending ambitions she regarded as unaffordable. They swallowed the medicine because they were desperate to be in power and largely bought into the idea that they would not win without convincing voters that Labour would be a trustworthy custodian of the national finances. Her colleagues warmed to the concept of an “iron chancellor” when it was a campaigning tool; many of them are cooling on it now she is in post and telling them that government involves unavoidably unpleasant trade-offs.
In the past few days, we’ve been given a glimpse of some of the tensions between the chancellor and spending ministers who think their departments are getting the rough end of the Treasury stick. Letters have been sent to Sir Keir Starmer, in a rather vain attempt to appeal to him over the head of his chancellor, protesting about the Treasury’s spending plans for some departments. The authors of these bitter billets include Angela Rayner, the deputy prime minister, Shabana Mahmood, the justice secretary, and Lou Haigh, the transport secretary. It is heartening to see that the art of letter-writing is being kept alive by these members of the cabinet, but wouldn’t it have been easier to put in a phone call to the prime minister or send him a text? In my experience, letters of dissent are frequently written in the hope or the intent that they will be leaked – as these ones duly were. They are only the letters we know about. One cabinet minister tells me they suspect that the majority of its members have been at it.
The news on spending won’t be all bleak. I will be astonished if Ms Reeves does not direct additional resources towards some of the most politically sensitive areas. The NHS will get more, in part to help address waiting lists, and this she will use to justify her tax increases. The cabinet dissent is emanating from ministers whose departments do not enjoy the same level of protection as the health service.
There is also a lot of trepidation about this budget among Labour backbenchers. It is fair to say that very few Labour folk join the party or stand for parliament because their lodestar is “fiscal responsibility”. They are in politics to help the disadvantaged, to improve public services and to spread opportunities more widely. They will be judging Ms Reeves against those criteria. We’ve already seen a furious backlash, including a hostile vote at the Labour conference, against the means-testing of the winter fuel payment to pensioners. Another pressure point on the chancellor is growing demands to abandon reductions to benefits for people with disabilities, which were pencilled in by the Tories before they left office.
The biggest audience for the budget is the electorate. Here two competing impulses are in play. The rapidity of the slide in Labour’s approval ratings since July has had an unnerving effect on the party. A lot of Labour MPs would like the budget to include at least a few crowd-pleasers to sweeten the gruel. Against that is the argument that the optimum time to do difficult stuff is now, when memories of the mess left by the Tories are still fresh and the next election is far away. The chancellor’s team are pre-selling the budget as a “wiping the slate clean” event that will involve up to £40bn of increases to taxes and trims to spending. Ms Reeves’s people are encouraging comparisons with significant “correction” budgets of the past, such as George Osborne’s austerity budget of 2010 and the fiscal retrenchments implemented by Norman Lamont and Ken Clarke in the wake of Black Wednesday in the early 1990s. Those precedents aren’t soothing jangled nerves in the Labour party.
In the circumstances she must contend with, the chancellor never had a chance of producing a budget to please everyone. Her aim is to win some respect for being willing to make tough choices to put Britain on a firmer footing for the future. What her more anxious colleagues fear is a budget that ends up satisfying no one while aggravating everyone. “Make or break” may not be such an exaggeration.