As hard as it is to describe the frenzy that gripped Whitehall on Wednesday evening, as officials and ministers began to realise the potential economic pain that could be inflicted on their departments in just a few days’ time, it has not stopped some involved from trying. “A mess,” was the verdict of one Labour figure. Another opted for “chaos”. A third was more brutal still: “Carnage.”
For a few incendiary hours that night, angry and disbelieving messages flew around Westminster as ministerial teams reacted to demands meted out by the Treasury – namely, to find significant savings in their departments by the end of the day. The wails led to direct appeals to Keir Starmer, which were soon rebuffed.
Cooler heads argued that the flurry of concern was unnecessary. Treasury demands for large departmental cuts are merely part of the standard pre-budget choreography that almost always results in a workable compromise.
But several departments still dragged out negotiations until Friday night. Some insiders – already on edge after the difficult start made by the government – fear further mistakes could be made.
“Health is probably just about OK, but I’m not sure about anyone else,” said one concerned figure. “Across the board, there are concerns about what we are being asked to do.”
Some Labour figures were so alarmed by the reaction that they thought resignations might follow. In the event, much of that evening’s heat soon dissipated, while Treasury sources argued that the spending review talks had actually been settled earlier than in some previous years.
However, the skirmish is already seen by many as the moment when a swath of the fledgling Labour administration realised just how hard this early phase of government will be.
The size of the task is evidenced by the breadth and scale of potential tax rises floated in recent days as chancellor Rachel Reeves and her team search for the £40bn needed for the fiscal “reset” she wants. The list is vast, from inheritance tax loopholes to higher tax on pension contributions and to increasing capital gains tax on shares.
Yet the potential tax raids causing most concern are those that threaten Labour’s election promise not to increase VAT, income tax or national insurance. The biggest ticket item appears to be an increase in employer national insurance contributions, raising anywhere between £9bn and £18bn, depending on the exact measure Reeves favours.
While Labour insiders say this meets its pledge not to increase national insurance on “working people”, the Conservative claims of betrayal will become increasingly furious. Similar dangers lie with a continuation of a freeze to income tax thresholds – effectively pushing up income tax, though the overall rates will remain intact.
If the dynamics of such a seismic budget were not hard enough to manage, both Starmer and Reeves face having to mull them over from outside the country this week, as they find themselves on badly timed trips.
Starmer is in Samoa attending the Commonwealth summit, while Reeves is heading to Washington for meetings at the International Monetary Fund. Prime minister’s questions will be in the hands of Angela Rayner, secretary of state for housing, communities and local government as well as deputy prime minister, and understood to be one of those fighting their corner most fiercely in relation to social housing funding and local authority finances.
For some, the run-up to this government-defining budget has been chaotic. “It’s a mess,” said one Labour veteran. “The way they’ve sprayed around things and allowed things to run has not been good. It’s like there’s a lack of strategic control about the whole process. And decisions seem to have changed at the last minute.”
However, others believe Reeves has played a canny game. Having possible tax rises out in the open ensures that they do not come as a surprise, while signalling to the markets that additional spending is being prudently raised from tax.
Reeves and her team are now turning their attention to the big political question: how can she sell a budget containing so much apparent pain? The Observer understands that she is considering a clear message focusing on the large national insurance rise for employers, arguing that businesses need to help put the NHS back on its feet.
It will take a feat of political dexterity to pull off the budget without succumbing to any of the numerous pitfalls. Government figures are not shying away from its historical significance, putting it alongside Norman Lamont’s tax-raising budget in 1993 in the wake of Black Wednesday, or George Osborne’s in 2010, raising VAT and paving the way for austerity.
Even if Reeves avoids the many elephant traps in the immediate aftermath of the budget, government insiders have already spied the next one coming down the track.
The long wait between the election and the budget has fuelled some of the frustrations of Labour’s first 100 days. But after Reeves’s statement, there will be months more to wait before ministers can paint a more positive picture of their plans.
The multi-year spending review, covering programmes beyond next year, will not come along until the spring.
“There is such a long time until the spending review,” said one official. “That’s when we can actually get on and do things. We are facing the same problem again. We haven’t been good enough at telling our story.”
How those intervening months will be filled depends almost entirely on how well Reeves’s package holds up a week on Wednesday.
But there is one area that is already causing acute nervousness in the Labour ranks – welfare. Reeves has always made it clear that ominous “tough choices” will have to be made.
It is expected, for example, that she will aim to make savings on health-related benefits that reach £1.3bn a year by the end of the parliament. It is the same figure earmarked by the last Tory government, though Labour will rejig the methods by which they achieve that goal.
The impact could be serious, as could the concerns of Labour MPs.
“It would be pretty horrendous in terms of the position of disabled people in hardship,” said Iain Porter, senior policy adviser at the Joseph Rowntree Foundation. “Lots of people in this group are already having to go to food banks or going without essentials, going without heating.”
Some in government are urging their colleagues to look beyond both the immediate budget travails and next spring’s more hopeful spending review.
For them, the party’s fate depends on lifting its eyes to a point in the more distant future – most probably the spring of 2029.
It is only then that Starmer and Reeves will have to answer to the electorate. That will also be the moment, they argue, when the real verdict on this month’s budget frenzy will be delivered.
