As difficult as it is to describe the frenzy that engulfed Whitehall on Wednesday evening, it didn’t stop some concerned from trying, as officials and ministers began to realize the potential economic pain that could befall their departments in just a few days. . It was a “mess”, a Labor insider said. Another preferred “chaos.” The third was even more brutal: “Massacre.”
That night, angry and disbelieving messages flew in Westminster for several provocative hours as ministerial teams reacted to demands met by the Treasury, namely to achieve significant savings in their departments by the end of the day. The outcries led to direct appeals to Keir Starmer, but these were soon rejected.
Cool heads argued that the rush for concern was unnecessary. The Treasury’s demands for major departmental cuts are just part of the standard pre-budget choreography that almost always results in a workable compromise.
However, many ministries postponed the negotiations until Friday night. Some insiders, already nervous after the government’s rocky start, fear further mistakes could be made.
“He’s probably in good health, but I’m not sure about anyone else’s condition,” one concerned person said. “There are concerns generally about what we are being asked to do.”
Some in the Labor Party were so alarmed by the reaction that they thought resignations might follow. As a result, while much of the heat of that evening quickly dissipated, Treasury sources argued that the spending review talks were actually concluded earlier than in previous years.
But the conflict is seen by many as the moment when some of the newly formed Labor leadership realized how difficult this first phase of government would be.
The scale of the task is evidenced by the breadth and scale of potential tax rises that have emerged in recent days as Chancellor Rachel Reeves and her team seek the £40bn needed for the fiscal “renewal” they want. The list is vast, from inheritance tax loopholes to increased pension contribution taxes and increased capital gains tax on shares.
But the potential tax raids causing the most concern are those that threaten Labour’s election promise not to increase VAT, income tax or national insurance. The biggest issue appears to be the rise in employer national insurance contributions, which could cost between £9bn and £18bn, depending on Reeves’ preferred measure.
Claims of betrayal by the Conservative Party will become increasingly angry as Labor insiders say it fulfills a pledge not to increase national insurance for “working people”. Similar dangers exist regarding the continued freeze of income tax thresholds and the actual raising of income tax even if overall rates remain unchanged.
If managing the dynamics of such a staggering budget wasn’t difficult enough, both Starmer and Reeves will have to think about these issues from out of the country this week as they find themselves on ill-timed trips.
Starmer is in Samoa to attend the Commonwealth summit, while Reeves is heading to Washington for International Monetary Fund meetings. Prime Minister’s questions will be in the hands of Angela Rayner, the deputy chancellor and secretary of state for housing, communities and local government, who is understood to be one of those fighting most fiercely for her corner on social housing funding and local government. finance.
For some, the process leading up to this government-determining budget has been chaotic. “It’s a complete mess,” said one Labor veteran. “The way they sprayed around and let things go was not good at all. There seems to be a lack of strategic control over the entire process. And decisions seem to have changed at the last minute.”
But others believe Reeves is playing a cunning game. While the openness of possible tax increases does not come as a surprise, it signals to markets that additional spending from taxes is being increased cautiously.
Reeves and his team now turn their attention to the big political question: How can he sell a budget with such obvious pain? Observer He understands that he is considering a clear message focused on a massive national insurance increase for employers and argues that businesses must help get the NHS back on its feet.
It will take political finesse to get through the budget without falling into numerous traps. Government figures do not shy away from its historical significance, placing it alongside Norman Lamont’s tax-increasing budget in the wake of Black Wednesday in 1993, or George Osborne’s tax-increasing budget in 2010, which paved the way for austerity by raising VAT.
Even if Reeves avoided several elephant traps in the immediate aftermath of the budget, government insiders already had their eye on the next one.
The long wait between election and budget has added to some frustrations in Labour’s first 100 days. However, after Reeves’ statement, it will be months before ministers paint a more positive picture of their plans.
The multi-year spending review covering programs beyond next year won’t take place until the spring.
“It’s a long time until the spending review,” one official said. “That’s when we can really take action and do something. We are faced with the same problem again. “We weren’t good enough at telling our story.”
How the intervening months play out depends almost entirely on how long Reeves’ package can last a week on Wednesday.
But there is one area that is already causing serious unease within Labor ranks: welfare. Reeves has always made it clear that ominous “hard choices” will have to be made.
For example, it is expected to aim to make savings of up to £1.3bn a year on health benefits by the end of parliament. This is the same figure set by the last Tory government, but Labor will reject the methods they used to achieve this target.
The impact could be serious, as Labor MPs fear.
“That would be pretty terrible in terms of the disadvantaged position of disabled people,” said Iain Porter, senior policy advisor at the Joseph Rowntree Foundation. “Many people in this group are already having to go to food banks or are wandering around without basic necessities and without heating.”
Some in the government are urging their colleagues to look beyond both the immediate budget woes and the more hopeful spending review next spring.
For them, the party’s fate depends on it setting its sights on a more distant future, most likely spring 2029.
Only then will Starmer and Reeves have to answer to voters. This, they argue, will also be the moment when the real verdict on this month’s budget frenzy will be made.