Reeves avoids budget landmines but she’ll always be exposed until solid economic growth kicks in
“She has probably just about got away with it,” was the immediate reaction of one seasoned Westminster journalist to Rachel Reeves’s second straight tax-and-spend budget, as media left the House of Commons to discuss the details with her advisers.
Wednesday’s well-flagged UK budget contained no real shocks, no landmines for the politically-exposed Reeves. So she may well have got away with it, for now. But for how much longer?
For how many more budgets can the Labour chancellor carry on, hiking taxes and spending, as all-the-while the UK economy gasps for solid growth?
The mood on Labour’s backbenches has been febrile recently as the party has slipped to historic lows in opinion polls, with Reform UK breathing down the government’s neck.
Many of the first-time Labour MPs who won seats in the party’s landslide victory last year fear this may be their one-and-only term in the House of Commons.
Senior figures in the party, meanwhile, were active in Commons tearooms over recent days, urging worried backbenchers to get behind their beleaguered chancellor for her speech, and to lift the spirits of the party.
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Yet it was the Tories who were most raucous as Reeves rose to her feet at the Commons dais at 12.30pm on Wednesday. The reason for their unruly shouting was that the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), had accidentally published the detail of the budget online just before noon, before her speech had even begun.
Tory leader Kemi Badenoch said the leak was a “shambles” while opposition calls of “resign” were directed at Reeves as she began to speak. The chancellor said she was “disappointed” and the OBR accepted the blame. Yet the palaver still added to the perception of chaos around this Labour government’s stuttering economic stewardship.
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Labour backbenchers initially looked subdued, but by the end of the chancellor’s speech they were cheering loudly as Reeves threw them red meat to appeal to the party’s base.
She scrapped the hated – among Labour MPs – two-child benefits cap. She introduced higher council taxes on £2 million-(€2.2million) and-over homes. She also effectively hiked income taxes by the backdoor by freezing thresholds. She also expanded the UK’s sugar tax.
Reeves also introduced a levy by-the-mile for drivers of electric cars. Official analysis suggested it could lead to 440,000 fewer electric cars being sold in Britain over coming years, but some analysts also praised the chancellor for the move. Paul Johnson, until recently head of the Institute for Fiscal Studies, said it she was “brave and right” to do it.
The chancellor also appears to learn from her first budget a year ago. She did not repeat her ill-received decision of last year to hike taxes on employers. She also more than doubled to £21 billion the fiscal “headroom” she held back.
Analysts said this made it less likely she would have to come back to the well for more cash during the year ahead, after she left herself only a small amount of wiggle room last year and fell short.
Reeves made much of the fact that the OBR has upgraded its estimate of UK economic growth this year from 1 per cent to 1.5 per cent. Yet the OBR’s analysis also showed that it expects growth to flatline in the years ahead, as the impact of Reeves’s combined £61 billion of tax raids over the last two UK budgets kick in.
Labour swept to power promising to supercharge growth. It hasn’t really happened so far. Until it does, Reeves will always be looking over her shoulder.
