Rachel Reeves’ budget and the limits of Treasury orthodoxy

By Charles Wawn

Millions of people will be dragged into higher tax brackets for the rest of the decade as Rachel Reeves unveiled her second tax raising budget as Chancellor with a raft of new measures aimed principally at tackling the cost of living, reducing spending on debt interest and encouraging the Bank of England to reduce interest rates.

The budget announced many measures – some new, others preexisting – aimed at easing living pressures in very tangible ways. These included a freeze on train fares and fuel duty, a reduction of environmental levy on energy bills and most famously, the abolition of the two-child benefit cap.

The Chancellor, who earlier on in November came under scrutiny for her failure to purchase a licence to rent a property she owns in South London, introduced several new tax measures like a surcharge on properties valued at over £2 million, higher income tax for landlords and capped how much people can pay into pensions without paying National Insurance at £2,000.

The increased so-called “sin” taxes on gambling and sugary products polled well, predictably. The same cannot however be said for the removal of the two-child benefit cap, which even a majority of Labour voters support keeping.

"The government must deliver tangible changes to the communities that desperately need it."

Voting Intention polls conducted since the date of the Autumn statement are stubbornly identical to the polls in the preceding weeks – Reform ahead, with Labour, Tories and the Greens jostling for second and third place. It is clear that a majority of the public do not believe that the budget will make Britain ‘better off’.

Opinion polling on something as complex as the budget should not be taken as a summative assessment of the quality of the budget, but it contributes to the growing list of symptoms that Keir Starmer’s leadership is in terminal decline. Unfortunately for the government, it is not the Bank’s numerous interest rate cuts but rising inflation and low growth which opposition parties persistently highlight and which seep into the minds of the voting public.

Despite Labour’s attempts to frame the tax rises as being targeted principally on the richest, the budget fails to truly challenge some of the taboos of fiscal policy, notably the profligate amount of money spent on elderly interests, despite the relative wealthiness of over 65s. Whereas pensioners next year will receive an above inflation pay rise of 4.8%, in accordance with the rules of the triple lock, the maximum amount under 65s can pay into an ISA will be reduced from £20,000 to £12,000. Over 65s will retain their £20,000 limit.

The unfairness perceived by young people, many of whom have heavy student debts, will not bode well for a government that relied heavily on young voters to get elected, in a country where age is the strongest indicator of voting behaviour. If the government wants to remain in power after the next election, it needs a pivot in its political and economic strategies before opponents more willing to do so dislodge them.

It is possible that economic growth will pick up beyond the meagre figures predicted by the OBR and some of the government’s goals will start to be met, but to make the government electable come 2029, a rethink of government policy and how it communicates its policy is well overdue. The government must deliver tangible changes to the communities that desperately need it. It can start by removing unnecessary barriers to economic activity like customs charges and tariffs on exported goods and investing in infrastructure that will improve interconnectivity the most neglected regions of the country, such as the Midlands, the North and Wales. The budget does little beyond shoring up money for everyday departmental spending.

Much of the economic consensus over the past 20 years has been discredited, so it should not be difficult for a young government to justify a change of direction. But if they choose otherwise, Britain will find it harder to make headway in this increasingly challenging economic environment, whilst its leaders remain idle in the dilapidated living room of Treasury orthodoxy which is well overdue a refurbishment.

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