On Saturday, Keir Starmer and his government had been in office for 100 difficult days. Far-right riots, fights between senior officials in Number 10, anger over freebies in an administration that claims to be in the service of the nation. Starmer now calls these “choppy days” and the last two “sidewinds” and insists they won’t blow him off course.
For cabinet ministers in major spending departments, another disappointment has mounted since they celebrated a landslide victory on July 4th. We are waiting for the budget. New governments (Labour in 1997 and the Tory/Lib Dem coalition in 2010) have tended to deliver initial budgets twice as quickly to set direction and establish a clear sense of purpose.
The Labor government’s first budget will not be delivered until October 30, nearly four months after it came to power. Under the fiscal transparency system that Labor decided to introduce to restore trust after Liz Truss, the Office for Budget Responsibility had to be given time to review the figures, make forecasts and check that everything was going well. Meanwhile, ambitious members of the cabinet are tearing their hair out.
Reeves is said to have locked himself in the Treasury, agonizing over what to do. “We can’t get anywhere near him,” said a cabinet colleague. “We can’t get past Darren,” they said, referring to Darren Jones, the chief secretary to the Treasury, Reeves’ number two and effective caretaker.
Amid increasing turmoil and, some say, a lack of a clear sense of direction, cabinet ministers are itching to make announcements or at least float ideas. But that wasn’t possible without knowing whether they would be given money for it in the budget or next spring’s spending review. “We are all pretty limited. This has been a problem,” said one.
When Reeves delivers the first budget in this country’s history by a female chancellor, it will be a big moment in other ways, too.
No new incumbent has ever faced so many competing challenges. One of these, in particular the £22bn black hole in the public finances it inherited, can rightly be attributed to 14 years of Tory government. Others, more strategic and tactical, are the Labor Party’s own product. They locked themselves inside.
Before the election, to convince voters it would be fiscally responsible, Labor promised to stick to strict fiscal rules on both spending and future investment.
The party has promised not to raise taxes on working people and has therefore also ruled out increasing income tax, VAT or national insurance. He also made a bold commitment to stimulate new growth and create the fastest-growing economy in the G7.
The promises did not end there. Since the election, Starmer has repeatedly said there will be no return to the Conservative Party’s austerity policy and large-scale cuts to public services.
Now there are only 17 days left to start growing and repairing public services without increasing taxes for workers.
A former Conservative Party minister put it this way: “They said they would not go back to austerity and rebuild services without increasing taxes on working people, but they will have to find the money somewhere.
“We are talking about huge sums of money. The Institute for Fiscal Studies says they need to raise £25 billion in taxes. But if they are to achieve this and keep their promises, all the elections will be really difficult.
“They have made life much more difficult for themselves by refusing to increase income tax, VAT or increase workers’ national insurance. This accounts for approximately 75% of total revenue.”
He added: “They caused a bit of confusion before the election by saying it would all come down to economic growth, but that was never really sustainable as you can never rely on growth.”
So with the government’s credibility at stake, where will Reeves go to raise the money?
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For a start, it is expected to change fiscal rules to allow longer-term borrowing for investment. Some believe this could worry financial markets unless it is made clear that this borrowing will be strictly limited.
The expectation in Whitehall is that Reeves will move to raise billions of dollars by increasing employers’ national insurance contributions after Starmer refused to rule it out under the prime minister’s questions on Wednesday.
Challenged by Rishi Sunak, Starmer went off the rails: “We have made an absolute commitment not to increase tax on employees,” he said, without saying whether Reeves could harm employers instead.
It is also believed that the Treasury aims to raise more billions of dollars by increasing employers’ pension contributions; a Whitehall source said it would be a “double whammy for businesses”. At the same time, the main rates of capital gains tax are expected to be increased by several percentage points. Finally, the Treasury could seek to raise extra revenue by increasing inheritance tax, perhaps ending the system where pensions can be passed down from generation to generation without being taxed.
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Another government source added that none of this seemed particularly consistent as the government prepares to host an investment summit in London for global business leaders on Monday: it is struggling to sustain growth. The real impact of hitting businesses with NI increases will be on working people. As a result, they will be the ones to receive smaller pay increases. “The other shock will be job losses.”
This administration is struggling not only with the mess left by the Conservative Party, but also with its own lack of planning, a former Treasury insider said. “In my opinion, they didn’t actually have much of a plan to go into government, partly because they thought it would be better to do it with the help of civil servants once they were in power.
“In 1997 and 2010 the plans were much more advanced. This group has a lot of catching up to do. They need a reset, a reboot, a complete shift. The obvious time to do this is with the budget. But there is no easy way to do this. You can’t raise these amounts without some pretty strong lines,” said the former insider.