It took 117 days, but was the Budget worth the wait?

Peter Cardwell, Senior Counsel
04/11/2024

It took Labour 117 days to have a Budget, the longest time between a new government being elected and a Budget being given by a new Chancellor in modern times. But the party’s supporters got, largely, what they wanted, and will have found this week’s fiscal event worth waiting for. 

This was an unashamedly political, ideological Budget with an emphasis on spending on public services to arrest, Chancellor Rachel Reeves argued, 14 years of Conservative austerity.  As always, speculation abounded for weeks as to what the Chancellor may have done, and with her insistence that working people would not have their taxes go up in terms of national insurance, VAT and income tax, it was clear around 75 per cent of Revenue & Customs’ take would not go up.  That meant increases in other aspects of the tax take – £40bn of them – as well as another £20bn or so of borrowing.

Reaction has been largely predictable, although what might not have been anticipated was the anger of farmers and their families to changes to inheritance tax rules which will mean much larger bills when farms are passed within generations. There are dark warnings of ‘the end of British farming’ and of problems with food security.  Protests are planned, and with 100 or so of Keir Starmer’s MPs in rural constituencies, this is an issue which will fester.

But ‘working people’, a phrase which has involved much verbal gymnastics over the past few weeks, are, on paper, better off or largely the same in terms of their salaries.  The minimum and living wages have risen.  The main taxes have stayed the same.  Fuel duty for those who drive to work has been frozen for another year.  But look more closely, and the 50 per cent rise in the fuel cap and much smaller rises in train fares will cause misery for millions, especially low-paid workers in the case of buses.  The vast majority of journeys by public transport occur on buses, something the London-centric media rarely appreciates and reports on fully.

Less happy are employers, who have been hit with substantial rises in their National Insurance contributions.  This will raise, Reeves insists, the majority of the £40bn tax take as a result of this Budget.  Speaking to a number of owners of small businesses over the past couple of days, they have told me they have already frozen recruitment, planned cutbacks or even considered a reduction in staff in order to cope with these rises.  That, for working people, will be devastating in the longer term.

And it all raises a bigger question, that of growth, and where it comes from.  The Office of Budgetary Responsibility says growth won’t be above 2 per cent over the course of the parliament, far short of the 2.5 per cent Starmer and Reeves argued they would deliver. This means the Labour manifesto is questionable in terms of what Labour will do.  Similarly, the OBR argues there is no clear evidence for the £22bn black hole in finances Reeves and many other senior Labour politicians have talked about for many weeks.

The volatility of gilt yields, now stabilised, to say nothing of the pound losing a substantial part of its value in the two days following the Budget, pointed to an even greater need for Reeves to calm the markets, though we are not in the territory of the disastrous Kwasi Kwarteng mini-Budget of September 2022.

As always, it takes time for things to settle – economically and politically – after a Budget.  The International Monetary Fund and OBR seem largely happy.  There is also the reaction of the public.  YouGov reports around 39% of people are, currently, reporting that tax rises are the main aspect of the Budget that has filtered through, with 19 per cent explicitly mentioning employers’ national insurance contributions and 13 per cent mentioning tax rises generally.  Only 8 per cent cite the rise in the minimum wage.  All of this shows there is much more for Labour to sell about this Budget to the public, something they will attempt to do in the coming days, particularly in regard to substantial extra funding for the NHS.

(Image credit: HM Treasury)