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The Guardian - UK
The Guardian - UK
Politics
Andrew Sparrow and Graeme Wearden

Autumn budget: Rachel Reeves raises taxes by £40bn and increases spending on NHS and schools – as it happened

Rachel Reeves NHS Budget AiM OBR Pimco United Kingdom Bank of England capital gains Economy

Early evening summary

  • Rachel Reeves has announced £40bn of tax rises on businesses and the rich as Labour’s first budget in 14 years sought to reverse more than a decade of decline in Britain’s public services. As Richard Partington and Jessica Elgot report, after months of speculation since the party’s general election landslide victory, the chancellor revealed a sweeping package of tax increases she said would be vital to balance the books and turn the page on austerity. “The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Reeves said. “There are no shortcuts, and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.” At its heart was an increase in national insurance contributions (Nics) paid by employers – worth £25bn by the end of this parliament – alongside billions of pounds in increases from changes to capital gains tax, inheritance tax, VAT on private schools and the non-dom tax regime. The chancellor said the budget was a fulfilment of a promise to shield working people from tax rises, adding that they would “not see higher taxes in their payslips as a result of the choices that I am making today”. And here is Larry Elliott’s analysis.

And here is a summary of the main measures in the budget.

Pimco: No reason to question UK's fiscal credibility

Bond trading giant Pimco have given the UK something of a vote of confidence tonight, after the budget.

Peder Beck-Friis, economist at Pimco, says the UK’s fiscal credibility is intact, and that he continues to find British debt attractive.

Beck-Friis also points out that while UK bond prices fell today, they did slightly better than German government debt, saying:

  • There are no reasons for us to question the fiscal credibility in the UK. The government intends to bring the primary deficit into a large surplus, for the first time since the early 2000s. While debt — by the conventional definition — may not fall in coming years, it is unlikely to rise dramatically either.

  • It was a volatile day for gilt yields, which ended the day a few basis points higher. Technical factors likely exaggerated the volatility. While gilt yields ended the day higher, they outperformed German Bunds.

  • We continue to like gilts. We expect the market to over time shift its attention away from fiscal to the underlying macro drivers, including softening inflation. Tight fiscal policy should weigh on growth and inflation ahead — and over time, we expect the market to price in a lower terminal rate for the Bank of England’s cutting cycle.

The Joseph Rowntree Foundation has done some post-budget modelling that suggests average disposable income will fall over the course of this parliament. This is from Alfie Stirling, its chief economist.

The Office for Budget Responsibility has a different analysis. It says:

Real household disposable income (RHDI) per person grows by an average of just over ½ per cent a year between 2024-25 and 2029-30 in our central forecast. This is below the average of around 1 per cent a year in the decade before the pandemic, but RHDI per person still rises 3½ per cent across the forecast.

Updated

Back in the City, stocks on Aim - the junior stock market – have surged this afternoon after Rachel Reeves resisted abolishing their inheritance tax perk.

The FTSE Aim All Share Index has jumped by 4%, after Reeves halved the tax relief available on Aim shares.

As we covered earlier, the chancellor announced that business property relief on Aim shares will be limited to 50% of the portfolio; currently, the full value of an Aim portfolio is exempt from inheritance tax if shares have been held for two years.

Assets with 50% relief are subject to an effective IHT rate of 20%.

OBR says there is 'insufficient certainty' about Labour's planning reforms to know what impact they'll have on growth

Keir Starmer has said boosting growth is a priority for his government, and that reforming planning laws will be a big part of this.

But the Office for Budget Responsibility says in its report it has not been able to adjust its growth forecasts to take account of these policies because there is “insufficient certainty” at the moment as to what exactly they will involve. It says:

The government has proposed significant changes to the National Planning Policy Framework as part of wider reforms to the planning system. These changes are yet to be finalised, as responses to a recent public consultation are being processed by the government. As such, there is insufficient certainty to adjust our current forecast for these measures and we will continue to monitor developments, especially around their implementation given past reform attempts, to judge if and when to incorporate them. These reforms may enable greater delivery of new housing and infrastructure projects, which would boost the associated investment flows, as well as increasing productivity over the longer term.

Rachel Reeves has told Sky News that she can’t rule out further tax rises in the parliament.

In an interview this afternoon, she said:

“I’m not going to make a commitment to never change taxes again.

“That would be irresponsible.

“But this is a once-in-a-parliament budget to wipe the slate clean after the mess that the Conservatives have left us.”

Rachel Reeves’s plans for increased spending and borrowing will put upward pressure on inflation, and thus interest rates.

David Miles of the OBR explained today that the watchdog’s new inflation forecasts and borrowing projections mean interest rates are likely to be 0.25 percentage points higher than they otherwise would have been in the coming years.

That implies one fewer quarter-point cut to rates than would otherwise be the case.

The odds of a rate cut at the Bank of England’s meeting next week have now dipped to around 83%, down from around 95% earlier this week…..

Commentators are desperate to come up with a verdict on the budget. We have reported plenty of them here, on this blog, and there are more views here.

But, according to Ed Balls, a former Labour shadow chancellor, it may take up to two years or more before we know whether the budget was any good. This is what he said about it on his Political Currency podcast.

On the one hand, [Rachel Reeves] has gone for big spending, borrowing for investment, investing in public services, but with an economy which is fragile. If that economy gets better and people feel it, it will be seen as a winning budget.

But if the economy falters and people feel squeezed, and the tax revenues don’t come in, she’s not going to be coming back a second time in this parliament, with ‘Rachel Reeves massive tax rise 2’ and at that moment … it starts to feel like she is being pushed into a much tighter position on public spending.

So we won’t know about this budget for one or two years.

I think what you’ll definitely say was ‘it was big and bold and historic,’ and she’ll end the day feeling that she’s given it her best shot.

What other opposition parties are saying about budget

Rishi Sunak responded to the budget statement in the Commons for the Conservatives, and there is a summary of what he said at 3.43pm. This is what other opposition parties are saying.

From Ed Davey, the Liberal Democrat leader

I worry that the government is still ignoring the elephant in the NHS waiting room: the crisis in social care. I urge the government to end the dither and delay and begin cross-party talks on social care now.

I’m glad that the chancellor has listened to Liberal Democrat calls for more investment in the NHS to start repairing all the damage done to local health services by the Conservatives. We will now hold the government to account on delivering its promises so people can see a GP or dentist when they need to.

From Richard Tice, the Reform UK deputy leader

This budget is an assault on working people, an assault on growth and an assault on hard work.

Thanks to this budget, we are all getting poorer: Per person, per family, per small business, per community.

Labour have failed working people with this budget, they came into office promising change, growth and no tax rises on working people.

What we have instead is the same old Labour: higher taxes, more borrowing and lower growth. This budget hurts hard working British people.

From Carla Denyer, co-leader of the Green party

After the Conservatives left our public services in crisis, we needed a Budget which would start building a fairer society and a greener economy. There is a way to help fund this – by raising taxes on the very wealthiest in our society.

But the chancellor has ducked it. Instead, we have a set of half measures, some of them positive, but a Budget which lacks a vision for our future and that does not deliver the change that people voted for in July.

This is a Budget that gives with one hand and takes away with the other. While there is modest investment in the NHS, the withdrawal of winter fuel payments for millions of pensioners will leave them colder and sicker. The chancellor is spending to create jobs but is also making it more costly to employ people by raising employers’ NICs [national insurance contributions], and more expensive for people to travel to work by raising bus fares. There’s funding to fix crumbling schools, but they will be filled with students going hungry because she won’t lift the two-child benefit cap.

Public services that have been starved of funding for fourteen years need more than a few crumbs. The money to fund our public services is available if the chancellor had the courage to tax the very wealthiest. Labour promised us no more austerity, but it won’t feel like that.

From Stephen Flynn, the SNP leader at Westminster

It’s clear the SNP is winning the argument on the need for more investment in our NHS and public services. I welcome those areas where the chancellor has listened, including the decision to change the Labour government’s conservative fiscal rules to allow for more investment.

However, while additional funding for public services is welcome, the Labour government’s budget also imposes more than £40bbn of cuts and tax hikes that will hit millions of Scots in the pocket - and it fails to deliver the transformative change people in Scotland were promised.

From Liz Saville Roberts, the Plaid Cymru leader at Westminster

Tax changes will hit businesses with lower-paid workers hardest, impacting families across Wales. And new rules on farm property could threaten the family-run farms that are the heart of Welsh agriculture.

It was good to see Westminster finally addressing the damage left by the coal industry - an issue Plaid Cymru has raised for years. But without real investment to create local jobs, these communities will keep paying the price for an industry that once fueled UK wealth.

Haldane predicts ‘bond markets won't fall out of bed’ after budget

Andy Haldane, the always-quotable former chief economist of the Bank of England, has billed today’s statement as a Keynesian budget.

Speaking on LBC’s Tonight with Andrew Marr, Haldane pointed out that Reeves has anounced extra borrowing, extra spending, and extra taxation – but warns that the payoff in growth terms “remains a bit uncertain right now”.

Haldane also voiced hopes that the bond market won’t panic about the plans, saying:

‘My guess would be there’s enough assurance around Rachel’s new fiscal rules… the current one, the one that balances the books on current spending three years ahead, would be seen as a tighter rule than the earlier one.

So, my guess would be that bond markets won’t fall out of bed. And of course, what really matters to bond markets is a good story about growth.

With the help of Blick Rothenberg, we’ve just launched our budget calculator which lets you calculate if you’re better, or worse, off after the budget:

Scotland’s finance secretary, Shona Robison, has welcomed the extra funding form the budget but insisted the Scottish government still faces “enormous cost pressures”.

The chancellor said the devolved government would receive an additional £3.4bn from the Treasury this year and next year, bringing its total funding to £47.7bn next year. Scottish ministers had been braced for another tough settlement.

Robison said:

We called for increased investment in public services, infrastructure and tackling poverty. This budget is a step in the right direction, but still leaves us facing enormous cost pressures going forwards. The additional funding for this financial year has already been factored into our spending plans.

By changing her fiscal rules and increasing investment in infrastructure, the chancellor has met a core ask of the Scottish government. But after 14 years of austerity, it’s going to take more than one year to rebuild and recover – we will need to see continued investment over the coming years to reset and reform public services.

City wealth management firm Investec are comparing the budget to a chess gambit – and warning that it might backfire…

In a research note titled The Reeves Gambit, they say:

The Chancellor is a keen chess player and the government’s fiscal strategy does resemble a gambit in chess, where a player sacrifices a piece in order to gain a longer-term strategic advantage. Spending more money on investment should enhance the capital stock and in principle will provide the economy with the required tailwind over the medium-to-long term.

These prospects would be reinforced if the new government is successful in attracting greater business investment as well. Indeed the OBR gave a qualified thumbs up to medium-to-long prospects in this respect. But today’s Budget is a calculated risk which could backfire, leaving the UK’s fiscal position in a worse mess than when it started.

There was some confusion this morning when the Treasury released a statement from Rachel Reeves saying the budget would mean “more pounds in people’s pockets”. It is going to raise taxes by £40bn a year by the end of the decade. Tax-raising budgets can have considerable benefits, but ‘more pounds in pockets’ is a concept normally associated with tax cuts.

On its website, the Treasury has published an article identifying three ways in which the budget will put “more money into your pocket”. It says the national minimum wage is going up, universal credit claimants who have to pay back benefit debt will get the money deducted at a slower rate, and the Help to Save scheme, incentivising people to save, will be extended.

The Guardian’s own guide to how you might be personally affected by the budget is here.

John Burn-Murdoch of the Financial Times points out that the UK is far from the only country facing a record high tax burden (as covered earlier):

Government ministers welcome 'huge' budget deal from chancellor

Government ministers in Scotland, Wales and Northern Ireland have welcomed a “huge” budget deal after the chancellor said the devolved nations will get record levels of funding.

Rachel Reeves, the chancellor, said the three governments will benefit from the largest real terms funding since the advent of devolution, receiving a total of £6.6bn from the budget after years of spending squeezes under the Conservatives.

She unveiled a series of significant investment pledges for all three nations, including new green hydrogen projects at Cromarty in the Highlands and Milford Haven in south west Wales, a £25m city growth deal for Argyll and Bute in Scotland, £25m to maintain disused coal tips in Wales, as well as £125m to launch the new GB Energy headquarters in Scotland.

Ian Murray, the UK’s secretary of state for Scotland, said the total settlement for Scotland of £3.4bn would have a “huge impact” on the devolved government’s spending, with Treasury funding rising to a record £47.7bn next year.

Darren Jones, the chief secretary to the Treasury, told reporters that meant public spending in Scotland would soon be 20% higher per person than the UK average.

The chancellor said Wales would receive an additional £1.7bn and Northern Ireland £1.5bn for both day-to-day funding and investment in infrastructure.

The Treasury confirmed after her statement those figures involved extra funding across this year and next, so were the equivalent of two years additional spending, rather than a jump in funding from this year to next.

Its data tables showed the actual rate of increase in real terms over those two years was 2.3% for Scotland; 1.3% for Wales and 1.3% for Northern Ireland. The capital funding for Northern Ireland actually fell by 0.3% between 2023/24 and 2025/26.

• The headline of this post was amended on 1 November 2024. An earlier version referred to “devolved governments” welcoming the budget; while ministers there had made positive statements, their comments were not included in the post.

Updated

Today’s budget raises taxes by more than twice as much as the emergency budget of November 2022 (which was rolled out to calm the markets after the mini-budget), reports accountancy firm UHY Hacker Young.

They have calculated that the budget ‘red book’ forecasts a net increase in taxes of £138.7bn over the next five years, the largest increase in tax of any budget in the past 15 years.

Richard Stanley, tax partner at UHY Hacker Young, says:

“This was already the most highly anticipated budget in a generation – but the scale of the changes is far more radical than most anticipated.

“The vast majority of these tax increases will fall on businesses – many of whom are still struggling from high interest rates and years of high inflation.”

Updated

Farmers protest about plan to stop farms worth more than £1m being exempt from inheritance tax

Farmers are angry about the announcement in the budget that farms worth more than £1m will no longer qualify for exemption from inheritance tax. After the first £1m, the agricultural property relief available will be 50%, not 100% as it was before.

The National Farmers’ Union believes that farmers will not be able to pass their farms on to their children because inheritance tax bills will be too high.

Jeremy Clarkson, Britain’s most famous celebrity farmer, has posted this on social media.

Rupert Harrison, who was chief adviser to George Osborne when Osborne’s “omnishambles'” 2012 budget was derailed by the pasty tax, says he thinks this is the budget decision most likely to unravel.

But, in its document explaining the move, the Treasury claims that only around 500 families a year are likely to be affected. It says that, by the end of the decade, cutting the agricultural property relief, and reducing business property relief from inheritance tax for shares not listed on recognised stock exchanges, will save around £500m per year. It says:

It is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief. This also contributes to the very largest estates paying lower average effective inheritance tax rates than smaller estates.

Financial markets have been on “a wild ride” since the announcement of the UK’s latest budget, says analysts at investment bank ING.

As we’ve been blogging through the afternoon, UK borrowing costs did initially fall today - as investors welcomed the confirmation of large. tax rises.

But the rally reversed (with UK bond prices falling and yields rising), as the City also digests the sharp increase in borrowing forecast by the OBR.

As dark descends in London, UK 10-year bond yields are up almost 5 basis points at 4.243%, on track for their highest close since late May, in the early days of the general election campaign.

James Smith, developed markets economist at ING, explains:

Now that the full details are available, what immediately stands out is just how much borrowing is projected to rise over the next few years. The Independent Office for Budget Responsibility reckons that borrowing will, on average, be £36 billion (1.3% of GDP) higher each year over the next five fiscal years. That’s a big number, and the updated Debt Management Office gilt remit confirms that will result in a sizeable increase in bond issuance.

That might sound surprising, given the scale of the tax rises. But crucially, not all of the promised £40bn/year extra tax revenue will arrive straight away. In fact, the OBR estimates that only £25bn will show up in the next fiscal year, most of which comes from the hike in employers’ national insurance (social security). The myriad of other revenue-raisers will take more time to show up in full.

Tax rises may be coming through gradually, but the corresponding rise in spending does not. OBR numbers confirm that day-to-day spending will rise by £41bn next year, compared to previous plans. In real terms, that’s an 8% rise in spending across two fiscal years. Capital spending is £18bn higher next year, too.

We’ve argued for some time that the government had little choice but to raise real-terms spending. But what has been delivered is undoubtedly higher than many had expected just a few weeks ago.

Resolution Foundation: Budget engages with Britain’s economic challenges, but....

The Resolution Foundation warns that Rachel Reeves has only taken the “first step” towards tackling the UK’s economic challenges.

Mike Brewer, interim chief executive at the Resolution Foundation, says:

“The first Labour Budget in 15 years was an historic moment, and huge in both tax and spend terms. Rachel Reeves announced £326bn of extra funding for public services and investment across the parliament, funded by the biggest tax rising Budget on record along with extra borrowing.

“The Chancellor has done a reasonable job of ensuring a balanced package of tax reforms. Essentially, she has more than reversed the last Government’s pre-election National Insurance cuts with post-election National Insurance rises. But there are winners and losers in this convoluted policy reversal, with self-employed workers and small businesses being the big winners and firms employing lots of low or very high earners worse affected.

“The Chancellor has delivered a Budget that engages with the seriousness of Britain’s economic challenges. But it is only the first step of what will be needed to secure strong public services, end stagnation, and lift living standards for all.

In their quickfire analysis of the budget, the Resolution Foundation also point out that:

  • Rachel Reeves has “largely avoided” the real per-person cuts to unprotected departments implied by Jeremy Hunt’s plans. The £44.1bn boost (in 2029-30) to day-to-day public services spending (RDEL) announced today is the biggest real-terms increase since the 2000 Spending Review.. they say.

  • The UK’s projected tax take by the end of the Parliament will be higher than Spain’s today, but lower than Germany and the Netherlands.

  • The package of tax rises included “welcome” revenue raising reforms to Inheritance Tax and Capital Gains Tax (CGT), together raising £4.8bn a year by 2029-30, and a major £25.7bn rise in employer National Insurance (NI) contributions, which broadly reverses the employee NI cuts announced by Jeremy Hunt in the run-up to the last election.

Brewer also echoes the concerns voiced by welfare charities today (see previous post), saying:

“And while the Chancellor has confronted Britain’s austerity challenge, she has kicked the can down the road on Britain’s equally pressing poverty challenge until next Spring at the earliest.

A failure to reverse damaging welfare cuts could see over 200,000 more children affected by the two-child limit.”

Campaigners criticise budget for not including social security measures 'that will seriously bring down hardship'

Campaigners and charities have expressed concern about the measures on welfare announced in the budget.

The Joseph Rowntree Foundation said that, although there were some good announcements in Rachel Reeves’s speech, there was nothing on social security that would “seriously bring down hardship”. Paul Kissack, the JRF chief executive, said in a statement:

It’s deeply worrying that we haven’t seen changes to social security that will seriously bring down hardship. In particular private renters will feel let down by the choice to keep local housing allowance frozen meaning that it will become further out of step with local rent levels, which have soared in recent years.

People receiving sickness benefits also face a fearful future at a time when almost two thirds of those experiencing destitution have a long term health condition. The government has failed to explain how they will save £3bn from the benefits bill and will offer no certainty and more anxiety rather than the respect they deserve.

United Response, a learning disability charity, criticised Reeves for talking about the need for a crackdown on benefit fraud. Sapphire Beamish, its head of communications, said:

It is a poor decision to continue the rhetoric around tightening work capability assessments alongside a ‘crackdown on fraud’.

The negative framing on welfare continues to inflict stigma and increase the worry for people with a learning disability who are left feeling let down that the focus is on saving money over supporting disabled people.

James Taylor, executive director of strategy at disability equality charity Scope, welcomed investment in localised employment support for disabled people, but added:

Bringing in changes based on savings, not on supporting disabled people, will be disastrous.

Ramping up restrictions won’t help support more disabled people into work, it will only make their lives harder.

UK living standards will suffer from the chancellor’s decision to increase the national insurance contributions paid by companies.

The Office for Budget Responsibility estimates that growth in real household disposable income per person, a measure of living standards, will stall in 2026-27 and 2027-28, as firms are squeezed.

[As flagged at 2.43pm, real wages are expected to stall in 2026 and 2027 as firms pass on the cost of their higher NICs bills to their workforce.]

The OBR says:

Real household disposable income (RHDI) per person, a measure of living standards, grows by an average of just over ½ a per cent a year over the forecast.

But the profile is uneven, with strong real wage increases resulting in growth of 1¼ per cent this fiscal year and next before RHDI per person stalls for two years in the middle of the forecast as real wage growth slows and taxes increase.

Compared to our March forecast, the level of RHDI per person is just over 2 per cent higher at the start of the forecast due to data revisions, but 1¼ per cent lower by the start of 2029.

The bulk of this difference (around 85 per cent) is explained by policies announced in this Budget.

Updated

The tax rises announced by Rachel Reeves may be at a record high for a budget in cash terms. But, as a share of GDP, the tax rises in Norman Lamont’s 1993 budget were higher, according to Robert Colvile from the Centre for Policy Studies.

Despite the announcement of £1.8bn for childcare, the sector will not do well from the measures in the budget, according to Christine Farquharson, an economist at the Institute for Fiscal Studies. She explains why in this thread.

£1.8 billion looks like a chunky commitment to childcare - and it is.

But this isn’t new money; it’s recommitting to the plans Chancellor Hunt announced in March 2023.

The bigger Budget *change* will be felt in childcare settings’ bills: they face a triple whammy on pay.

We saw two big changes on National Insurance: raising the employer rate from 13.8% to 15%, and cutting the level at which NICs kick in.

That will raise the employer NICs bill for an average full-time childcare worker from £2,200 a year to almost £3,000 – up more than a third.

Public organisations – like schools and colleges – will be compensated for these higher costs.

But although we’re on track for 80% of preschool childcare in England to be publicly funded, it’s largely delivered by the private sector – which won’t see similar protections.

At the same time, the Chancellor announced a big increase in minimum wage from April – 6.7% overall, and 16.2% for those aged 18 to 20.

Big benefits for a low-paid workforce.

But also big pressures on settings, who spend three quarters of their budget on staffing.

Side note - for most of the economy, we expect around 3/4 of the rise in Employer NICs to eventually be felt in lower wages.

That’s harder to do when a lot of your workforce is on (or near) min wage.

And remember – gov’t is also planning a big expansion of workers’ rights, bringing in many protections ‘from day one’ of employment.

That benefits workers starting new jobs.

But in a sector with high turnover, rights from day one will have a disproportionately big impact.

The big question will be whether - and to what extent - these new pressures are reflected in funding rates.

No new money for this in the Budget, so this would have to come from somewhere else. Makes next year’s Spending Review even tougher.

OBR: policies at this Budget lower business investment

Rather damningly for the government, the OBR reckons the budget will not boost business investment.

The watchdog has concluded that the net impact of policies at this budget lowers business investment – with higher taxes hitting profits, and the government ‘crowding out’ private sector opportunities.

As a result, business investment is expected to fall as a share of GDP as profit margins are squeezed.

The OBR explains:

Higher government investment increases incentives for businesses to invest, but in the near term this is more than offset by the crowding out effect of the fiscal loosening in this budget.

Updated

The response from Conservative officials to the budget was necessarily limited – as the spokesperson said, they could hardly comment on specific policies when a new leader will be in place on Saturday, with their own priorities.

The one thing they were happy to say is that the party will refer itself to the statistics watchdog, the Office for Statistics Regulation (OSR), over its repeated election claim that a Labour government would cost the average working household about £2,000 in higher taxes.

The figure was heavily disputed by Labour, and the OSR rebuked the Tories at the time for not making clear how the number was arrived at.

The party spokesperson said that the letter to the OSR would be to explain that the real figure should have been £3,600 per working household, a figure hastily crunched by the Tories after the budget. This was not, journalists were assured, a joke. The OSR might see it otherwise.

Was this a Budget for growth?

The IFS’s Paul Johnson sounds unconvinced, at least in the medium term, saying:

The OBR pointed to a short-term sugar rush, as a result of the debt-financed spending splurge, but that turns into a modestly negative impact by the end of the parliament.

In the longer term, extra investment, planning reform and greater stability should all help to boost growth, and the OBR said as much. They think the Budget will eventually boost output in a sustainable way, but only from 2032.

He adds, though, that Reeves’s has been left with a “truly dire” fiscal inheritance – but wishes she had addressed this with more candour in the election campaign:

The spending plans inherited from the last government were never likely to survive contact with a Spending Review. Tax rises were always a near-inevitability.

The new government’s embrace of fiscal reality is commendable – and would have been even more so had it occurred during the election campaign, and not only after the fact.

Updated

IFS: Reeves is taking two big gambles

Paul Johnson, director of the Institute for Fiscal Studies, has released his initial response to Rachel Reeves’s budget.

Johnson says that in “broad brush” terms, this is the budget we’d expected – with big tax rises, more cash for public services, more borrowing and more investment.

He explains:

Tax is now on a path to 38.2% of GDP, its highest level ever in the UK, as the Chancellor seeks to shore up public services. But the Chancellor wanted to go further on spending, and so she’s also topping up public service budgets through borrowing in the next couple of years.

We’re now set to borrow £28 billion more in 2025-26 than previously planned, and to spend £19 billion more on public investment: around a third of the extra borrowing is going towards higher day-to-day spending.

But beyond that, he says the chancellor is taking two big judgements, or “one could say gambles”.

Johnson says gamble number one is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist.

If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.

And the second gamble, is that the extra borrowing will be worthwhile.

Johnson (who will leave the IFS next summer to become Provost of Queen’s College, Oxford), says:

Under pre-election plans we were set to borrow an average of £59 billion per year over the next four years. We now expect to borrow an average of £85 billion.

The hope is that the benefits – from more funding for public services in the next couple of years, and from more public investment throughout the parliament – will more than offset the costs. These costs include higher debt servicing costs but also, according to the OBR, higher inflation and higher interest rates than we’d otherwise have seen. A lot hinges on how well the government spends the money. The additional investment is extremely front-loaded, which doesn’t fill me with confidence on how efficiently it will be spent - if indeed it is spent in that timescale.

Updated

Here are four verdicts on the budget from a Guardian panel.

Sunak claims budget full of Labour broken promises

Here are more lines from Rishi Sunak’s response to the budget.

  • Sunak, the former PM and outgoing Tory leader, said the budget was full of broken Labour promises.

On the day that he took office, the prime minister said that he wanted to restore trust to British politics with actions, not words.

Well today, his actions speak for themselves with a budget that contains broken promise after broken promise and reveals the simple truth that the prime minister and the chancellor have not been straight with the British people.

Time and again, time and again, we Conservatives warned Labour would tax, borrow and spend far beyond what they were telling the country. And time and again, they denied they had such plans.

But today, the truth has come out, proof that they planned to do this all along, because today’s budget sees the fiscal rules fiddled, borrowing increased by billions of pounds, inflation-busting handouts for the trade unions.

In particular, he said Reeves had broken a promise not to change the fiscal rules.

She specifically told the British people she wouldn’t change the debt target because, and I quote she said, ‘I’m not going to fiddle the figures to get better results’.

But that is exactly what she has done. She has gone back on her word and fiddled the figures so that she can borrow billions more. Broken promise after broken promise, and working people will pay the price.

  • He rejected claims that the Conservatives left the economy in a poor state.

The chancellor and prime minister have tried to say that they had no choice but be in no doubt, their misleading claims about the state of the economy are nothing but a cynical political device.

Today’s situation is a world away from the genuinely bleak legacy that we Conservatives inherited from the last Labour government.

Borrowing – the Chancellor forgot to point out – borrowing: £1 in every four that they spent. Debt rising every year. And unemployment at 8%.

  • He said the Office for Budget Responsibility was not backing claims his party left a £22bn black hole in the budget. (See 3.13pm.)

The OBR has in fact declined to back up her claims of a fictional £22bn black hole. It actually appears nowhere in their report. It is deeply, deeply disappointing that she has sought to politicise the independent OBR that should be above party politics.

  • He accused Reeves of letting borrowing rip.

Today the Chancellor has launched an enormous borrowing spree, saddling our children and grandchildren with billions upon billions of pounds more debt, pushing up interest rates, leaving our economy more exposed to future shocks and leading the OBR today to now forecast higher inflation in every year of the forecast.

Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finances, because if they were truly in such a dire strait, as she has said, what we should have seen today was a significant reduction in borrowing to repair them, not the splurge that she has just unleashed.

  • He accused Reeves of delivering “delivering a tidal wave of anti-business regulations” and claimed Labour was led led by people “who have no experience of business”.

OBR: Budget won't boost growth over five years

Labour has been insisting that growth is the number one priority of the government – so the new forecasts from the Office for Budget Responsibility are a blow.

The OBR is predicting a pick-up in growth this year, and in 2025… but that’s followed by a slowdown from 2026.

Growth in 2026, 2027 and 2028 is forecast to be lower than expected in March, as this chart shows:

(although Rachel Reeves did insist that any comparison between today’s forecast and the OBR’s March forecast is false, due to the previous government not being straight with the watchdog)

The OBR says:

Having stagnated last year, the economy is expected to grow by just over 1 per cent this year, rising to 2 per cent in 2025, before falling to around 1½ per cent, slightly below its estimated potential growth rate of 1⅔ per cent, over the remainder of the forecast.

Budget policies temporarily boost output in the near term, but leave GDP largely unchanged in five years.

The watchdog adds that tax rises in the budget weigh on real incomes, meaning that private consumption falls as a share of GDP.

A reminder, here are the new forecasts:

  • GDP in 2024: +1.1%, up from 0.8% growth forecast at the March budget

  • GDP in 2025: +2%, up from 1.9% growth forecast at the March budget

  • GDP in 2026: +1.8%, down from 2.0% growth forecast at the March budget

  • GDP in 2027: +1.5%, down from 1.8% growth forecast at the March budget

  • GDP in 2028: +1.5% down from 1.7% growth forecast at the March budget

  • GDP in 2029: +1.6%, a new forecast

Updated

Here’s Sky News’s Ed Conway on the reversal we’re seeing in the bond markets, which is pushing up UK borrowing costs….

Updated

OBR says Treasury under Tories withheld information about spending pressures, but does not say black hole worth £22bn

The Office for Budget Responsibility has backed up Rachel Reeves’s claim that the last government was not open about the spending pressure in its 2024-25 budget – but it has not specifically endorsed her claim that this amounted to a £22bn black hole.

Reeves made the claim in July, when she published a report saying the Tories were committed to spending £21.9bn this financial year which they did not have funding for. At the time the Office for Budget Responsibility launched an inquiry into whether it was misled by the Treasury about spending pressures when it published its report on the March budget.

Today the OBR has published the results of that inquiry. It concludes:

Up until the March 2024 forecast, the processes for forecasting levels of RDEL [resource deparmental expenditure limits] spending during spending review periods had been largely successful. This was not the case in the March 2024 EFO [economic and fiscal outlook – the OBR report]. The Treasury did not share information with the OBR about the large pressures on RDEL, about the unusual extent of commitments against the reserve, or about any plans to manage these pressures down at the challenge panel. Further information that came to light after this meeting, but before the forecast was published, about pressures on baseline RDEL budgets and the implications of policy decisions announced at the budget, was also not sufficiently shared.

The view of the OBR is that, had this information been made available, a materially different judgement about RDEL spending in 2024-25 would have been reached. The underspend assumption of £2.9 billion would very likely have been dropped, and so there would have been a materially higher DEL forecast for 2024-25 in the March 2024 EFO.

Richard Hughes, chair of the OBR, has summarised the findings in a letter to the Commons Treasury committee. The letter includes a Q&A, which implies that if there was a “black hole”, it was only about half the size Reeves implied.

1. Does your review substantiate the chancellor’s £22 billion claim?

The review found that in the run-up to the March 2024 Budget, the Treasury had information about £9.5 billion of net pressures on departments’ budgets in 2024-25 which it did not share with us.

Had this information been made available, we would have reached a materially different judgement about resource DEL spending in 2024-25.

Chris Philp, a Tory former Treasury minister who is now shadow leader of the Commons, suggests his party has been at least in part vindicated.

If I’m reading it correctly, the OBR note today says the Treasury only submitted a claim that the “black hole” was £9.5b (not £22b) and even that can’t be verified.

Updated

UK bond yields now rising – borrowing costs now at post-election high

Back in the bond market, UK borrowing costs are now rising as City investors digest the budget … and the Office for Budget Responsibility’s verdict.

The gilt market rally before, and during, the speech has now unravelled.

This means that the yield (or interest rate) on 10-year UK gilts is now up 10 basis points at 4.4%, having dropped from 4.3% last night to 4.2% earlier today.

That’s the highest interest rate for UK government borrowing since May.

Investors may be concerned that the government is only left with £15.7bn of fiscal headroom in 2029-30 under the new PSNFL debt measure.

They’re probably also unimpressed that growth is forecast to be lower than previously expected from 2026, despite the large increase in spending and borrowing in the budget.

Shamil Gohil, fixed income portfolio manager at Fidelity International, says:

“The gilt market has given back all of its pre-budget morning gains post this afternoon’s speech.

While the Chancellor seems to have struck the right balance between higher tax hikes, higher spending and borrowing to invest in the economy, there are question marks around the fiscal headroom, which looks quite tight, both on the net financial debt rule and current budget surplus, even after easing the rules - overspend is certainly higher than the market expected.

It helps that she has the backing of the Office of Budget Responsibility (OBR) on growth forecasts, however, it remains to be seen if the Labour government can credibly deliver on their plans, and execution risks remain high

Updated

OBR: VAT on private schools will mostly be passed on in fees

Rachel Reeves’s decision to introduce VAT on private school fees from January is expected to bring in £1.6bn a year from next year, rising to £1.7bn in 2029-30.

The Office for Budget Responsibility also estimates that it will cut the number of pupils in independent schools by 35,000.

The OBR reckons the effective VAT rate applied will be 15.4%, because schools will be able to recover the VAT on some of their input costs (which could be a windfall for some schools who have invested in buildings and land acquisition in recent years).

The OR estimates that around two-thirds of the cost is passed on through higher fees, just less than a quarter is covered through a reduced service provision, and the remainder is absorbed through cost efficiencies and from profits.

It adds that the VAT change is more likely to deter prospective future new students from entering private schools, rather than driving existing students away, as parents will be more reluctant to disrupt their education.

It adds:

Overall, the costing estimates that as a result of the policy in the steady state there will be around 35,000 (6 per cent) fewer private school pupils, reflecting both leavers and, primarily, fewer new joiners.

The cost of 35,000 additional state sector pupils would be around £300m, based on a £7,690 per pupil cost in England, the OBR adds.

North Sea oil companies have found a silver lining in Rachel Reeves’ budget statement - the Chancellor may have followed through with plans to increase the headline tax rate on oil and gas profits to 78% but the Treasury has allowed a “chink of light” amid the industry’s gloom by leaving room for some investment allowances.

Shares in Harbour Energy, Enquest, Ithaca Energy and Serica Energy all bounded higher after the budget statement revealed that oil and gas developers would still have access to 100% first year capital allowances within the windfall tax regime. It also confirmed a decarbonisation allowance to incentivise the sector to invest in cleaner, lower-emission technologies which will be set at 66%.

Harbour, Enquest and Ithaca shares stabilised at around 3% higher than the previous day’s close by midafternoon while Serica’s shares remained around 10% higher.

Equity analysts at Jefferies said the outcome was positive versus most expectations in the industry. Labour came to power with an election pledge to toughen the windfall taxes put in place by the previous government after a surge in oil company profits followed Russia’s invasion of Ukraine.

It confirmed today that it would raise the energy profits levy by increasing the headline tax rate companies pay on their oil and gas profits by three percentage points, to 78%. It also removed the 29% investment allowance until 2030.

The Aberdeen Chamber of Commerce said there was “no justification for a super tax on ‘windfall profits’ which no longer exist in a world where the oil price has returned to $70”.

Updated

Rachel Reeves spoke for 77 minutes, meaning her budget speech was longer than any of those delivered by her Conservative predecessors between 2010 and 2024, PA Media reports. The longest budget speech delivered during that period was by Philip Hammond in October 2018, which lasted 71 minutes. Reeves’s speech was also nearly 20 minutes longer than the last time a Labour chancellor delivered a budget, which was in March 2010 when Alistair Darling spoke for 58 minutes.

Rise in employers' national insurance will have negative impact on pay, OBR says

The government has said that its budget decisions were designed to protect people’s payslips. (See 9.31am.) But the Office for Budget Responsibility says the increaser in employers’ national insurance contributions (NICs) will have a negative impact on pay. It says:

We expect real earnings to grow 2.4 per cent this year and 1.2 per cent in 2025, 1.1 and 0.7 percentage points higher than in March, respectively. Real earnings then stall in 2026 and 2027 as firms rebuild margins and pass on the cost of higher employer NICs. This means we do not expect real wages to resume growing in line with productivity (around 1 per cent a year) until beyond the forecast horizon.

Elsewhere in the report the OBR says it expects firms to pass on about 60% of the extra costs to employees.

But the OBR also says that, although the NICs rise could also lead to firms investing less, the positive impact of more money for public investment will compensate for this.

The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents, while the net fiscal loosening would crowd out some private investment in an economy with little spare capacity. At the same time, the increase in public investment boosts potential output by raising the public capital stock and incentivising some private investment. Taken together, Budget policies leave the level of output broadly unchanged at the forecast horizon.

The OBR has lifted its forecast for house price growth over the next few years.

It predicts prices will rise 1.7% this year, then 1.1% in 2025, before averaging around 2.5% from 2026 until the end of the forecast period in 2030.

This is partly because house prices have risen faster than expected this year, and are about 3% higher than forecast in March.

The OBR says:

Average house prices remain above our March forecast throughout [the forecast], driven by the recent resilience and our forecast for higher nominal incomes. This would leave the average house price in the UK at £310,000 in 2028, around 2½ per cent higher than our March forecast.

Regulated rail fares to rise by 4.6% next year

Rail passengers will face an inflation-beating rise in faces next year, the Treasury Red Book shows.

It says that the annual regulated rail fares cap will rise by 4.6% on 2 March 2025, one percentage point above the RPI inflation rate of 3.6% in July (the usual benchmark).

This will be the lowest absolute increase in three years, the Treasury says. This year they rose by 4.9%, because the government chose to cap the rise below the RPI rate.

Rail passengers may perhaps wonder why they are getting hit, while drivers will benefit from another freeze to fuel duty…. (see 1.05pm).

Paul Johnson, director of the Institute for Fiscal Studies thinktank, has posted this on social media saying the rate at which spending is increasing is astounding.

Speaking on BBC News, Johnson said that, because the rate at which spending increases will slow down later this parliament, there is a risk the government might need to raise taxes again later.

Speaking on the same programme, Darren Jones, chief secretary to the Treasury, said the manifesto promises on tax would last the whole parliament. He said he did not accept that the government has broken its promise on national insurance.

As a result of today’s budget, the UK state is forecast to settle at 44% of GDP by the end of the decade.

That’s almost 5 percentage points higher than before the pandemic, the OBR points out.

The Treasury has published all its budget documents online.

The key report, the red book, is here. But there are lots of other documents, and the full set is here.

And the Office for Budget Responsibility documents are all online too, including its economic and fiscal outlook, its main report on the budget.

OBR: Tax take to hit record 38% of GDP, and debt rising too

The Office for Budget Responsibility’s verdict on the budget is out.

And it declares that Rachel Reeves has delivered “a large increases in spending, tax, and borrowing” today.

The ONR says:

The Budget increases spending by £70 billion annually, with two-thirds on current and one-third on capital spending.

Half of this increase is funded though the tax increases we’re just heard about (mainly higher employer national insurance contributions); overall, tax brings in an extra £36bn per year – and pushes the tax take to a record 38% of GDP by 2029-30.

The other half of the spending increase comes from higher borrowing – an extra £32bn per year.

And while that temporarily boosts GDP growth to 2% in 2026, it leaves output “unchanged in the medium term”, the fiscal watchdog says.

The OBR adds:

New fiscal rules, to balance the current budget and get net financial liabilities falling relative to GDP in five years, are met by small margins of £10 and 16 billion respectively.

Updated

Rishi Sunak is responding to the budget now.

Echoing what he was saying about the budget yesterday (see 9.12am), he says this budget is a betrayal of what Labour said before the election about not planning to raise tax.

UK borrowing costs still lower after budget speech

Rachel Reeves appears to have achieved one of the key goals of this budget – not to give the markets a pre-Halloween shock.

UK bond prices have strengthened a little during the speech, adding to their gains this morning.

This has pushed the yield (or interest rate) on 10-year bonds down to 4.2% as the chancellor retakes takes her seat, down from 4.3% (a post-election high) last night.

Longer-dated debt is stronger too – with the 30-year gilt yield also down by over 9 basis points, to 4.69%.

Bond market Mohamed El-Erian, President of Queens’ College, Cambridge, and chief economic adviser at Allianz, says the bond market is responding favourably to the budget:

It’s quite a contrast on the panic we saw two years ago during the mini-budget of September 2022, when unfunded tax cuts spooked investors.

Today’s reaction suggests the government has done a decent job of preparing the markets, points out Archie Hall of The Economist

Reeves ended with a challenge to the Tories.

The choices I have made today are the right choices to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain.

That does not mean that these choices are easy, but they are responsible.

If the party opposite disagrees with the choices that I have made, then they must answer, what choices would they make?

Reeves announces £22.6bn increase in day-to-day health spending

Reeves ends with an announcement about investment in the NHS.

She says day-to-day health spending will rise by £22.6bn, and capital spending by £3.1bn, this year and next year.

She goes on:

So today, because of the difficult decisions that I have taken on tax, welfare and spending, I can announce that I am providing a £22.6bn pound increase in the day to day health budget.

Let me set out what this funding is delivering. Many NHS buildings have been left in a state of disrepair. So we will provide £1bn pounds of health capital investment next year to address the backlog of repairs and upgrades across our NHS to increase capacity for tens of thousands more procedures.

Next, we will provide a further £1.5bn pounds for new beds in hospitals across our country, new capacity for over a million additional diagnostic tests and new surgical hubs and diagnostic centres so that people waiting for their treatment can get it as quickly as possible.

The health secretary will be setting out further details of his review into the new hospital program in the coming weeks and publishing in the new year. But I can tell the house today that work will continue at pace to deliver those seven hospitals affected by the Raac crisis …

And finally, because of this record injection of funding, because of the thousands of additional beds that we have secured, and because of the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target for waiting times to be no longer than 18 weeks by delivering on our manifesto commitment for 40,000 extra hospital appointments a week.

Updated

Reeves announces £6.7bn for capital investment in schools

Reeves announces an extra £6.7bn for capital investment by the Department for Education. That is a 19% increase in real terms on this year, she says.

And there will also be £2.1bn for school maintenance – £300m more than this year.

She says this money will help address the problems caused by Raac (crumbly concrete).

On the green transition, Reeves says she is funding 11 new green hydrogen projects. There will also be £3.4bn for the warm homes plan, she says..

Reeves turns to transport.

She says she will secure the delivery of the trans-Pennine upgrade to connect York, Leeds, Huddersfield and Manchester.

She says there will be better rail services between Oxford, Milton Keynes and Cambridge.

And the funding has been secured to ensure HS2 can go to Euston station, she says.

Reeves sets out some of the investment that is now going ahead.

She says there will be over £5bn for affordable housing.

And she confirms local authorities will be allowed to keep all the receipts from the sale of council homes.

Updated

Move to Persnuffle confirmed

The news that the UK’s fiscal rules will now target Public Sector Net Financial Liabilities, PSNFL, (known as “persnuffle” in economic circles), confirms the Guardian’s report from last week.

It means the UK will now account financial assets, including student loans and company shares, alongside government debts.

Here’s Ben Zaranko of the IFS:

It should free up potentially £50bn of extra borrowing within the fiscal rules, as this chart shows:

Reeves says she will be left with £15.7bn of headroom at the end of the OBR’s forecast period, under PSNFL.

That’s “much lower than expected”, reports Paul Johnson of the Institute for Fiscal Studies.

Updated

Reeves confirms debt definition is changing, but says four 'guardrails' will ensure extra borrowing is responsible

Reeves says, under the Tories, public investment was set to fall from 2.5% of GDP to 1.7% of GDP.

She says her new debt rule – called the investment rule, because the definition of debt is changing to allow more investment – will address this.

She confirms that the government will move to public sector net financial liabilities (PSNFL) as the debt measure. This is a metric that has been measured since 2016, she says.

She says four “guardrails” will be in place.

First, our portfolio of new financial investments will be delivered by expert bodies like the National Wealth Fund, which must, by default, earn a rate of return at least as large as that on gilts.

Second, we will strengthen the role of institutions to improve infrastructure delivery.

Third, we will improve certainty setting capital budgets for five years and extending them at every spending review every two years.

Finally, we will ensure that there is greater transparency for capital spending with robust annual reporting of financial investments based on accounts audited by the National Audit Office and made available to the office for Budget Responsibility at every forecast.

Taken together with our stability rule, these fiscal rules will ensure that our public finances are on a firm footing, while enabling us to invest prudently.

Updated

Reeves says, in line with the Barnett formula, there will be an extra £3.4bn for the Scottish government, an extra £1.7bn for the Welsh government and an extra £1.5bn for Northern Ireland.

And the Welsh government is getting £25m to help fund the maintenance of coal tips, she says.

Reeves confirms MoD spending is going up by £2.9bn.

There will be another £2m for Holocaust education, she says.

And there will be an extra £1.3bn for councils, including at least £600m for social care and £230m to to tackle homelessness and rough sleeping.

Reeves announces £1bn increase in special educational needs funding

Reeves says she is tripling investment in breakfast clubs.

And she announces a £1bn uplift in special educational needs funding – an increase of 6% year on year, she says.

Reeves is now talking about spending.

She says day-to-day government spending will rise by 1.5%.

And spending including capital spending will rise by 1.7% in real terms, she says.

At the election, we promised there would be no return to austerity today, we deliver on that promise.

Reeves says freeze in income tax and national insurance thresholds will not be extended, contrary to some pre-budget reports

There was speculation that Reeves would extend the freeze on income tax and national insurance thresholds put in place by the last government. But Reeves has decided not to, she says.

The previous government froze income tax and National Insurance thresholds in 2021 and then they did so again, after the mini budget, extending their threshold freeze for a further two years …

Having considered this issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people would take more money out of their pay slips. I am keeping every single promise on tax that I made in our manifesto. There will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions by the previous government.

From 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Updated

Blick Rothenberg, the audit, tax and business advisory firm, point out that Rachel Reeves has announced the largest tax-raising budget in decades.

Simon Gleeson, a partner at Blick Rothenberg, says:

“£40bn in tax raises is the largest any chancellor has made since Norman Lamont in 1993, at £38.5bn (Conservatives), and Dennis Healy at £31.4bn in 1975 (Labour).”

The key measure is tax as a share of the economy:

Reeves confirms VAT on private school fees will go ahead.

To help high streets, Reeves says there will be 40% relief on business rates for the retail, hospitality and leisure industry in 2025-26, up to a cap of £110,000 per business.

The small business tax multiplier will be frozen next year. And permanently lower tax rates will be introduced for retail, hospitality & leisure properties from 2026-27.

And she says she is cutting the duty on draught alcoholic drinks by 1.7 percentage points.

Updated

Reeves says the government is going ahead with the pledge to abolish non-dom status.

Reeves announces 50% increase in air passenger duty for private jets

Reeves turns to air passenger duty.

There will be a small adjustment, worth no more than £2 for economy, short-haul flights.

But there will be a different approach for private jets. Their air passenger duty will rise by 50%, she says.

Making a joke about Rishi Sunak, she says this would be the equivalent of £450 per passenger for a flight to California.

Reeves announces a new tax on vapes.

Reeves says stricter rules on inheritance tax will raise more than £2bn

Reeves is now on inheritance tax. She says she is taking “a balanced approach”.

First, the previous government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years until 2030 that means the first £325,000 of any estate can be inherited tax free, rising to £500,000 pounds if the estate includes a residence passed to direct descendants and £1m when a tax free allowance is passed to a surviving spouse or civil partner.

Second, we will close the loophole created by the previous government made even bigger when the lifetime allowance was abolished by bringing inherited pensions into inheritance tax from April 2027.

Finally, we will reform agricultural property relief and business property relief from April 2026. The first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all. But for assets, but for assets over £1m inheritance tax will apply with a 50% relief at an effective rate of 20%,

This will ensure that we continue to protect small family farms with three-quarters of claims unaffected by these changes.

I can also announce that we will apply a 50% relief in all circumstances on inheritance tax for shares on the Alternative Investment Market (AIM), and other similar markets, setting the effective rate of tax at 20%.

Reeves says these changes will raise over £2bn by the end of the forecast period.

AIM companies, and investors, had worried that their IHT tax relief would be removed today – those fears have pushed the AIM market down since the general election was called in May.

Updated

Reeves confirms capital gains tax going up

Reeves turns to capital gains tax.

The lower rate will rise from 10% to 18%, and the higher rate will go up from 20% to 24%, she says.

She says this will still be the lowest rate for any European G7 country.

UK companies will be disappointed, although not surprised, by Rachel Reeves’s decision to increase the rate on employer national insurance.

Damon Hopkins, Head of DC Workplace Savings at financial services consultancy Broadstone, says it will have immediate consequences for businesses.

“An increase in the rate of employer National Insurance and lowering the threshold for when businesses start paying the tax will add to the financial pressures that businesses are already experiencing.

The revenue raising measure is likely to have immediate knock-on consequences whether that is pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements.”

And while Reeves says it will bring in £25bn, it will probably have a knock-on impact on other tax revenues.

Firms could absorb it through smaller pay rises for staff (meaning lower income tax receipts in future years), or lower profits (meaning a smaller corporation tax bill)

Reeves says employers' national insurance going up to 15%, and threshold falling, raising £25bn a year

Reeves says she is not increasing income tax, employees’ national insurance and VAT.

But she will increase employers’ national insurance, she says. It will go up by 1.2 percentage points, to 15%, from April next year, she says.

And she says she is reducing the threshold at which it gets paid. This will come down from £9,100 per year to £5,000.

Reeves says this will raise £25bn a year by the end of the forecast period.

This will raise £25bn per year by the end of the forecast period.

Updated

And Reeves says she has decide to continue the freeze in fuel duty. This will cost almost £3bn, she says.

Reeves says the state pension will rise by up to £470.

Reeves says the government is hiring more people to raise tax revenues.

And Reeves turns to carers’ allowance.

She says the government is increasing the amount people can earn before they lose the benefit. It will rise to the equivalent of more than £10,000 a year, she says. She says this is “the largest increase in carers’ allowance since it was introduced in 1976”.

She says the government is also reviewing what is happening to overpayments.

Updated

Reeves confirms the 6.7% increase in the national minimum wage announced yesterday.

Updated

Reeves says crackdown on welfare fraud will save £4.3bn

Reeves says the government will find savings by reforms to the health and disability benefits system.

And there will be “a crackdown on fraud in our welfare system, often the work of criminal gangs”, using “innovative new methods to prevent illegal activity and provide new legal powers to crack down on fraudsters, including direct access to bank accounts to recover debt”.

She says this should save £4.3bn by the end of the forecast period.

There are also measures to get more people into work, she says.

Reeves says she will soon announce the Covid corruption commissioner.

This is the person tasked with recovering money paid for dodgy Covid contracts. There had been talk that the appointment might be announced today.

And she says David Goldstone is being appointed as chair of the new Office for Value for Money she is setting up.

And Reeves reads out the growth figures.

They show a faster than expected rise this year and next year, but then weaker than previously forecast growth later in the forecast:

  • GDP in 2024: +1.1%, up from 0.8% growth forecast at the March budget

  • GDP in 2025: +2%, up from 1.9% growth forecast at the March budget

  • GDP in 2026: +1.8%, down from 2.0% growth forecast at the March budget

  • GDP in 2027: +1.5%, down from 1.8% growth forecast at the March budget

  • GDP in 2028: +1.5% down from 1.7% growth forecast at the March budget

  • GDP in 2029: +1.6%, a new forecast

Updated

Reeves reads out the forecasts for borrowing figures.

It is due to fall from 4.5% of GDP this year to 2.1% of GDP by the end of the forecast, she says.

The Office for Budget Responsibility reports that the deficit this financial year is now forecast to be £127bn, up from the £87bn forecast in the March budget.

The OBR also show that the UK’s current budget will be in balance by the 2027-28 financial year, meeting Reeves’s ‘stability rule‘ to bring the current budget into balance.

Ed Conway of Sky News has more details of the borrowing forecasts:

Updated

Reeves says growth is her mission.

She says she is confirming her economic rules.

The “stability rule” means the government will not borrow to fund current spending.

She says the government will meet this in 2029-30, until that is the third year in the forecast, and then that will be the target for three years ahead, she says.

She says the government is forecast to meet this two years early.

This is from Paul Johnson, director of the IFS.

Current budget balance target by 2029-30 and then target 3 years ahead. Sensible. Current forecast is surplus by 27-28. But only by a small margin (<£10bn) in 2029-30.

Reeves says inflation is now forecast to be 2.5% this year, and 2.6% next year.

CPI inflation is then forecast to drop to 2.3% in 2026, 2.1% in 2027 and 2028, before finally hitting the Bank of England’s 2% target in 2029.

That’s higher than forecast in the March budget – when the OBR predicted inflation would be just 1.5% in 2025.

Updated

Reeves says she is maintaining the Bank of England’s inflation target of 2%.

She thanks Bank of England staff for their help.

And she thanks her predecessors for their advice. Kwasi Kwarteng said in a Mail on Sunday article his mini-budget was not perfect. She agrees, she says.

Updated

Reeeve says budget will raise taxes by £40bn

Reeves says this budget will raise taxes by £40bn. Watch her announcement below:

Updated

Reeves says she is setting aside £11.8bn to compensate infected blood victim scandals, and £1.8bn for Post Office scandal victims

Reeves says people can see the problems facing public services. She says:

The country has inherited not just broken public finances, but broken public services too.

The British people can see and they can feel that in their everyday lives: NHS waiting lists at record levels, children in portacabins as school roofs crumble, trains that do not arrive, rivers filled with polluted waste, prisons overflowing, crimes which are not investigated and criminals who are not punished.

She says the last government did not provide funds for services, and for things like compensation scheme (for Post Office operators, and for victims of the blood scandal).

She says Rishi Sunak apologised to the victims of the blood scandal. But he did not budget for compensation, she says.

She says she is setting aside £11.8bn to compensate the blood scandal victims, and £1.8bn for the victims of the Post Office scandal.

Reeves says OBR report out today says Tories did not disclose full information about spending pressure at time of last budget

Reeves says the Tories failed the country.

Austerity broke the public services, their Brexit deal harmed the economy, and their policies led to a fall in living standards.

Reeves says today the government is publishing an analysis of the £22bn black hole in this year’s spending she says Labour inherited. It includes hundreds of unfunded measures, she says.

And she says the OBR is publishing its own report (as reported on Sunday) saying the last government did not disclose all the spending pressure it faced at the last budget. If the OBR had known about these, its assessments would have been “materially different”, she says.

She says she will implement all the recommendations from the OBR’s review.

Here’s our colleague Jessica Elgot’s take:

Updated

Reeves says she is “deeply proud” to be the first female chancellor.

She say her messages to girls everywhere is, let there be no ceiling to your hopes.

Reeves says Labour must 'invest, invest, invest' to promote growth

Reeves says change must be felt. There must be more money in people’s pockets. (See 8.34am.)

The only way to deliver growth is to “invest, invest, invest,” she says.

She says Labour has had to renew Britain before, and it will again.

Reeves starts budget speech

Rachel Reeves gets long and loud cheers as she starts.

Britain voted for change, she says. The government has a mandate to restore stability and start a decade of renewal, she says.

UK government bonds are holding their earlier gains, as Rachel Reeves begins to deliver the budget.

Kallum Pickering, chief economist at investment bank Peel Hunt, shows the details here:

Nusrat Ghani, the deputy Speaker, takes the chair. The budget statement is always chaired by the chairman of ways and means (the senior deputy Speaker), not the Speaker.

She starts by reading out a statement from the Speaker criticising the government for releasing budget information early, ahead of the budget. The statement says ministers are wrong to say this is justified by precedent.

Mark Francois (Con) asks about veterans who served in Northern Ireland. They will lose their protection from prosecution because the government is repealing the Northern Ireland Legacy Act. He says why the government is “throwing them to the wolves to pander to Sinn Féin”.

Starmer replies simply: “I’m not.”

That is is the second time recently he has dismissed a hostile question with a blunt denial.

Alex Baker (Lab) asks for funding for a leisure centre in Aldershot.

Starmer says Baker is the first Labour MP for Aldershot ever. The local council ran down services, he says. The government will work with councils to ensure they can deliver services properly, he says.

David Mundell (Con) asks about a constituent whose son died after having a drink spiked. Will the government do more to raise awareness of “this abhorrent practice”?

Starmer says the government is going to make spiking a specific criminal offence.

Richard Tice (Reform UK) asks if Starmer agrees with the government’s independent reviewer of terrorism legislation, Jonathan Hall, who says more information should be made available to the public about terrorist incidents.

Starmer says he will be careful in his reply, because of the case mentioned by the Speaker earlier. But he says MPs have a choice:

All of us in this house have a choice to make, including both candidates to be the next Tory leader – they can either support the police in their difficult task, or they can undermine the police in their difficult task. I know which side I’m on.

This is a reference to the fact that Kemi Badenoch and Robert Jenrick were both suggesting yesterday that ministers and the authorities were covering up information relating to the Southport killings.

Carla Denyer, the Green party co-leader, asks Starmer if he thinks the Israeli decision to ban Unrwa (the UN’s relief and works agency for Palestine refugees) is a breach of human rights law.

Starmer condemns the decision, but does not say if this is a breach of human rights law.

Ed Davey, the Lib Dem leader, also pays tribute to Sunak. He says Sunak was the only party leader who got as wet as he did during the election campaign (a reference to the ‘Drowning Street’ speech announcing the election date).

He asks about the climate crisis, and Starmer confirm he is going to the next Cop conference.

Davey also urges Sunak to do more to reduce the conflict in Sudan. Starmer says this is an issue the UK will take forward as chair of the UN security council.

Sunak says it is Diwali, and he says he is proud to have been the first British Asian PM. He is also proud of the fact that people did not regard that as a big deal. He asks if Starmer agrees that this is revealing about “the kindness, decency and tolerance that has always been the British way”.

Starmer agrees. He says he meant it when he said everyone was proud to see him become PM. He again notes that this is Sunak’s last PMQs, but he jokes that given the speed at which the Tories are getting through leaders, he could be back again.

Sunak says he is particularly grateful for the support Starmer offered over Ukraine, and he urges Starmer to continue with that, and with backing Nato. Again, Starmer agrees, saying Nato was a Labour creation.

Now they are agreeing even more. Sunak stresses the importance of Northern Ireland, and urges Starmer not to neglect it. Starmer says Northern Ireland is a personal cause for him too, because of the work he did there on policing as a lawyer.

Sunak asks about another of his passion, cricket, and urges the government to back an initiative to promote the sport in schools. Starmer agrees.

And Sunak turns to another of his pet causes, artificial intelligence. He urges Starmer to embrace his inner tech bro. Starmer is happy to embrace that too.

Rishi Sunak starts by thanking Hoyle and Starmer for his words.

He says, as PM, he always liked the pre-budget PMQs, because he was just the warm-up act.

He says he will be spending more time in the greatest place on earth, where the scenery is fantastic and the place is full of characters. He is talking about his consitutency in Yorkshire, he says (not California, where he also has a home, and where people think he might at some point go to to live.)

He says he is looking forward to doing the Yorkshire coastal path walks, and asks for a meeting, as a backbencher, with the PM to discuss it.

Starmer agrees. He jokes he thought Sunak might ask him to join the walk too.

Starmer pays tribute to Sunak's 'decency' at start of Tory leader's final PMQs

Keir Starmer starts by thanking Rishi Sunak for his service. They have had disagreements, and argued at some length. But he wants to thank him for his commitment to public service, his hard work and his decency, he says.

Hoyle also says this will be Rishi Sunak’s final PMQs as Tory leader. He has spoken in the Commons as chancellor, PM and leader of the opposition. He says MPs look forward to his further contributions.

That causes some laughter. There have been persistent rumours that Sunak will stand down as an MP at some point soon – claims that Sunak’s aides have denied.

Lindsay Hoyle, the Speaker, starts by telling MPs that the sub judice rules will apply to any questions about the Southport killings. It is vital that nothing is said in the Commons that might prejudice a trial, or lead to it being abandoned, he says.

He says MPs want to see justice done for the families of the three young girls killed. Things said in the Commons could seriously prejudice proceedings, he says. He says he will not lift the normal sub judice rules, he says.

He says he will ensure MPs can questions ministers about this case after the trial is over. He expects it to start in January, he says.

Keir Starmer has taken his seat for PMQs. Rishi Sunak came in a few minutes ago.

But on the Labour benches, they did have to queue up early for a seat, Kate Ferguson from the Sun on Sunday says.

Labour MPs were queueing up from 830am this morning to get a good seat on the green benches to see Rachel Reeves’ first budget. That is 3 hours before doors open and 4 hours before the Budget I’m trying to find out who was the keen bean at the front of the queue

MPs can reserve a seat in the chamber by inserting a prayer card at the start of the day. They don’t have to sit there for three hours.

This is from John Crace, the Guardian’s sketch writer, who is in the press gallery watching the Commons chamber fill up ahead of PMQs and the budget statement.

There’s an advantage in having only 121 seats. Tory MPs don’t have to rush in early to secure a seat for the budget

Keir Starmer is taking PMQs before the budget statement. Here is the list of MPs down to ask a question.

UK government borrowing costs are continuing to drop away from the pre-election highs hit last night.

Analysts suggest we may see a relief rally as the uncertainty surrounding the budget fades today.

Kathleen Brooks, research director at brokerage XTB, says the UK’s 10-year Gilt (government debt) is outperforming its European counterparts, adding:

Is this a sign that the bond market will welcome the fiscal shake up that is set to be announced later today? We could traders see ‘sell the rumour and the buy the fact’ in the UK Gilt market, once the uncertainty of the Budget is out of the way.

The yield (effectively the interest rate) on 10-year UK government debt is now down to 4.22%, down from 4.3% last night [yields fall when bond prices rise].

That takes yields back to levels seen last week, before the Guardian reported that Reeves plans to change the UK’s debt rules, to target public sector net financial liabilities (PSNFL), allowing her to borrow more money within the fiscal rules.

But as Brooks points out (and journalists often forget), government bond yields move for many reasons – geopolitics, interest rate forecasts, and moves in the wider bond market are all factors influencing how much a return a bond investor wants for buying debt.

Brooks says:

Gilt yields have moved in line with their peers in recent weeks, as global bond markets have been shaken up by major elections and new governments with vastly different fiscal plans to their predecessors.

There has also been a larger focus on rising sovereign debt piles in the West. Thus, Rachel Reeves’ fiscal plans cannot be solely blamed for rising UK bond yields [in recent weeks].

While the broad outlines of the budget are already clear, there is a lot of detail yet to be revealed. Mike Brewer, interim chief executive at the Resolution Foundation thinktank, has posted a short thread on social media saying what he will be looking out for.

Spending: General point is that Hunt’s baselines were so tight that any increase won’t necessarily feel like a big splurge. We’ll hear about the envelope for 2026 to 2029, but how tight will 2025-26 be esp outside NHS?

Fiscal and investment: If it’s P-SNFL, how much of new headroom will be spent? and where will that leave investment spending? Is there a convincing 10-year plan?

PSNFL is public sector net financial liabilities, the new definition of debt being used in the fiscal rules.

On tax (1):

How much is employer NI going up, what is happening to thresholds, and what is Govt doing about public sector? Will a rise worsen the tax bias in favour of employer pension contributions?

Fuel duties – petrol is v cheap, but seems a rise is not certain.

On tax (2): what exactly is the package for carried interest, other aspects of CGT, and Inheritance Tax?

On welfare: looks like being a tough Budget, with pressure on DWP to find savings to unlock spending elsewhere. What is the uprating decision, and will we see a change to Local Housing Allowance or the two child limit?

Nurseries have raised concerns about the impact of the 6.7% increase in the national minimum wage on their salary bill, warning it will have “a huge bearing” on the sector’s ability to deliver the government’s expansion of funded childcare next year.

Early years staff are among the lowest paid in the workforce, and the National Day Nurseries Association (NDNA) said it was right their pay should go up to take into account inflation and the rising cost of living.

Purnima Tanuku, CEO of the NDNA, warned however:

This substantial hike in minimum wages will mean that early years providers have a much bigger salary bill from April 2025.

To deliver the expansion of early education and care places, the sector needs to recruit another 35,000 staff. However, if funding rates do not keep pace with rising wages, it will be impossible for providers to meet demand.

With the government estimated to be buying 80% of all childcare hours from nurseries next year, it’s critical that the sector’s biggest customer pays a fair rate.

Ministers have committed to funding increases linked to inflation, statutory wage rises and average earnings, so they need to meet this commitment when funding rates are published later this year.

Pictured: Reeves with the budget red box outside 11 Downing Street this morning.

Updated

Rachel Reeves and her Treasury team have posed for the traditional budget photo outside 11 Downing Street.

According to Arj Singh in the i, the budget will contain measures to stop the Home Office routinely using the aid budget to pay for hotels for asylum seekers. There will be “a review mechanism to ensure the overseas development aid (ODA) budget is better protected from overspending on asylum”, he reports.

The Green MPs Carla Denyer and Siân Berry joined protesters outside Downing Street today saying the government should be introducing a wealth tax. The photocall was organised by the pressure group Green New Deal Rising. Zak Coleman, one of its campaigners, said:

Young people in this country have endured years of Tory austerity, watching our public services collapse and the climate crisis intensify. Today’s Labour budget is a chance to change direction – but we need more than half-measures. While loosening fiscal rules and raising some wealth taxes are steps forward, they don’t go far enough to confront the deep crises we face.

If Labour is serious about securing a just, green future, it’s time to commit to bold solutions. A 2% tax on extreme wealth, targeting those with fortunes over £10 million, could raise £24 billion – a lifeline for rebuilding public services, creating secure jobs, and ensuring a sustainable planet. Young people deserve a government that meets this moment with the scale of solutions that are needed.

Green New Deal Rising says a 2% tax on assets over £10m would raise £24bn a year for investment in public services and the green transition.

Kemi Badenoch claims budget will be 'con trick' because extra borrowing will mean higher taxes or lower spending

George Osborne is credited with popularising the baseline theory of economic policy, which says the government always has the advantage in politics because, at budgets, it sets the baseline, and so if the opposition wants to do anything different, it has to explain what spending it is going to cut (if it wants to reduce taxes), or what taxes it is going to raise (if it wants to increase spending). Voters are inclined to punish parties that declare they are going to depart wildly from the baseline, and so in recent years the main opposition party is often wary of making extravagant manifesto promises.

Today Rachel Reeves is resetting the baseline – and, in doing so, she is creating a trap for the Conservatives.

Kemi Badenoch is not replying to the budget statement today, but she is the favourite to become Tory leader on Saturday and in an article for the Telegraph she has condemned Reeves for changing the debt defintion, which she describes as a “con trick”. She says:

At first sight, unleashing a wave of money to build new roads, railways and hospitals sounds great. Yet, nothing in this world is ever free. Changing the rules doesn’t change the fundamental position the UK is in; there is no magic money tree which has suddenly been miraculously found. This is a technical change which, however it is dressed up, is ultimately more borrowing. And it’s about time that Labour levelled with people about the consequence of their attempts to fiddle the figures …

Technical changes have real world consequences. Ultimately, debt is debt. The more we take on, the more risky and less resilient our country becomes to investors. As soon as Reeves dribbled out news of her con trick, yields on UK bonds started to rise. Some commentators now expect interest rates to be cut more slowly. Every month that interest rates don’t come down means another 120,000 households across the country fixing their mortgages higher than they otherwise would. And, over time, higher gilt rates means higher taxes or lower spending elsewhere. For a Labour party which mercilessly hounded Liz Truss in 2022 for real-world impacts, the principle is the same. Actions have consequences – and Labour appear to have learnt nothing.

If Badenoch does become Tory leader, she will have to say whether or not she intends to revert to the debt definition that Reeves is abandoning (underlying public sector net debt). And, if she won’t rule that out, Labour will claim that the extra investment sanctioned as a result of the new definition will be at risk.

In her article Badenoch also says that changing the debt definition is a breach of the line in Labour’s manifesto saying: “Our fiscal rules are non-negotiable.” She has a point; if the definition used in the rules is changing, clearly they were negotiable. But, as with saying national insurance in the manifesto only meant employees’ national insurance (see 8.34am), this is another real or apparent broken promise that voters may actually welcome.

Badenoch and other Conservatives argue that, because Reeves is changing the definition of debt used in her fiscal rules, people will end up paying more for their mortgages. In an explainer yesterday, Richard Partington said the evidence so far does not back this up. He said:

Despite the rise in gilt yields in the past month, average two-year fixed residential mortgage rates have fallen modestly, from 5.43% a month ago, to 5.39% on Monday, according to the data provider Moneyfacts.

High street banks price their fixed mortgage deals on money market “swap rates”, which are influenced by expectations for the Bank of England’s base rate. Financial markets expect the Bank will cut its base rate from 5% at present to about 3.75% before the end of next year.

Analysts expect Reeves’s budget will not have a significant impact on the Bank’s decisions, because the chancellor is not expected to dish out vast dollops of near-term inflationary stimulus.

UK borrowing costs fall ahead of the budget

This morning the Financial Times splashed on the news that UK government borrowing costs reached a post-election high yesterday. The Conservatives claim borrowing costs are going up because traders are concerned about the extent to which government borrowing, and government debt, will rise, because Rachel Reeves is changing the definition of debt used in her fiscal rules. But analysts say that other factors are also in play, and that this is nothing like the rise in borrowing costs triggered by the Liz Truss mini-budget.

On his business live blog, Graeme Wearden says this morning there has been a slight fall in government borrowing costs.

Labour says this will be a budget that dramatically changes the outlook for public finances. In this article Larry Elliott, the Guardian’s economics editor, describes five our budgets that have made a difference on this scale.

Keir Starmer has posted this message about the budget on social media.

This is a huge day for Britain.

After 14 years of decline, we will invest in our country - rebuilding our schools, hospitals and roads.

We won’t shy away from the tough decisions to grow our economy and protect working people’s payslips.

There is a brighter future ahead.

CBI says national minimum wage increase could limit business investment

The CBI, which represents businesses, and particularly large employers, has said the 6.7% increase in the national mimimum wage could harm investment. John Foster, the CBI’s chief policy and campaigns officer, said said the national living wage was a “valuable tool” for protecting the incomes of the poorest in society. He went on:

But with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.

That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.

Rishi Sunak says raising employers' national insurance would be 'complete betrayal' by Labour

By convention, the leader of the opposition always replies to budget statements. With other big financial statements from the chancellor, it’s the shadow chancellor who replies. Today will be Rishi Sunak’s final PMQs, but his last Commons speech as Tory leader will be his response to Reeves.

Speaking ahead of the budget, Sunak said putting up employers’ national insurance would be a “complete betrayal”. As the Mail reports, he said:

Rachel Reeves promised that her plans were fully funded, and she promised that she wouldn’t change the debt target because that would be “fiddling the figures”.

We already know that those promises are totally worthless because she is going to change her fiscal rules so she can go on a borrowing spree.

If she was to compound that by breaking her promise to the British people not to raise taxes on working people by increasing national insurance, that would be a complete betrayal.

The Tories argue that, even though workers do not directly pay employers’ national insurance, if firms have to pay more, employees are ultimately affected because there is less money for pay rises.

Rachel Reeves will announce almost £3bn more for the armed forces in the budget, the Telegraph is reporting. In their story Nick Gutteridge and Danielle Sheridan say:

[The chancellor’s] decision will end fears that defence will bear the brunt of the “difficult decisions” she says are needed to fix the public finances. It will mean the proportion of national wealth spent on the military will decline slightly but remain roughly stable at 2.3 per cent of GDP.

Part of the extra cash is expected to be used to cover the £400 million a year cost of giving soldiers a six per cent pay rise, backdated to April.

The money will also fund the purchase of weapons to replenish stockpiles that have been depleted by arms supplies to Ukraine …

It is understood the £2.9 billion injection will be a one-off while the government conducts a wider review into future defence spending.

Updated

In his First Edition newsletter, Archie Bland compares Labour’s pre- and post-election promises with what we are expecting to get from the budget today. He quotes Richard Partington, the Guardian’s economics correspondent, as saying that, although it will be a tax-raising budget, it will also be “a budget that protects large swathes of what Labour has loosely defined as working people”.

Major tax rises expected as Rachel Reeves prepares to set out first Labour budget in 15 years

Good morning. Rachel Reeves, the chancellor, will today seek to reset the trajectory of public spending and taxation for the rest of this parliament – perhaps for a decade, based on Labour’s pre-election rhetoric – with what is expected to be the biggest tax-raising budget in history, at least in cash terms. Larry Elliott and Pippa Crerar preview it here, in our overnight story.

In recent years budgets have become two-week news events, with many of the main measures being covertly, or overtly, announced in advanced by the Treasury, instead of being unbundled as a surprise in the hour-long Commons statement. This year that has been happening even more than usual, to the extent that government insiders are saying that there will be no surprises in the speech this afternoon. That means that Reeves won’t use her last two minutes to unveil an out-of-the-blue tax cut or spending bonanza destined to grab the news headlines; it doesn’t mean that there won’t be plenty of interesting news in the budget, and things we did not know. With most of the big announcements, we have a broad indication of what’s coming, but not the detail.

A ‘no surprise’ budget is very Keir Starmer (there were no surprises in the manifesto, or the king’s speech either – Starmer is more interested in governing than in media manipulation) and this means there should be no risk of the financial markets panicking (Liz Truss-style) because they have been caught unawares. But the tactic can backfire. George Osborne wanted the story of his 2012 budget to be his decision to cut the top rate of income tax, but that was leaked in advance and so on the day and afterwards the media focused instead on matters like the pasty tax, which led to the budget being seen as an omnishambles.

In comments about the budget released overnight by the Treasury, Reeves says:

My belief in Britain burns brighter than ever. And the prize on offer to today is immense.

More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards.

And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability.

The reference to “more pounds in people’s pockets” has had some commentators scratching their heads, because this is not a giveaway budget, but perhaps that is best understood by the reference in the previous sentence to “the prize on offer”; she is talking about what the budget might deliver in the years ahead, not tomorrow. But the minimum wage announcement will put more pounds in some people’s pockets.

The Treasury is also saying the budget will end austerity. In its overnight press release, it says:

[Reeves] will make clear that this budget rejects austerity, instead prioritising economic stability, investment and reform. The budget will ensure funding to cut hospital waiting lists, unlock affordable homes and new investment to rebuild schools. Meanwhile, working people won’t face higher taxes in their payslips in line with the manifesto commitment not to increase taxes on income tax, VAT or employee national insurance.

The chancellor will reflect on the tough decisions she has had to make to restore economic stability, on spending and welfare by cracking down on fraud, tax avoidance and waste, and making sure every penny of taxpayer money is spent wisely.

This is a rewrite of the Labour manifesto, which promised no increase in national insurance, and did not specify that the pledge only applied to employees’ national insurance. Labour claims this was implicit in the pledge because the manifesto talked about not raising taxes for workers. There will be an argument today about whether this is outright dishonesty and a broken promise, or standard political slipperiness, because employers’ national insurance is due to rise by a lot. But even if people do view this as a broken promise, the impact may be limited. Voters are willing to accept broken promises when they believe the decision involved is the right one.

Today we will be focusing almost exclusively on the budget. But there will be full coverage of PMQs, Rishi Sunak’s last as Tory leader. I’m Andrew Sparrow, and I am writing the blog this morning, but later Graeme Wearden, who normally writes the business live blog, will be joining for the budget coverage.

Here is the timetable for the day.

9am: Keir Starmer chairs a budget cabinet, where Rachel Reeves will brief colleagues (or at least those who have not been following the news for the past fortnight) on what will be in the budget.

Noon: Keir Starmer faces Rishi Sunak at PMQs.

12.30pm: Rachel Reeves delivers the budget.

2.30pm: Richard Hughes, chair of the Office for Budget Responsibility, holds a press conference about the budget and the OBR’s analysis of it.

If you want to contact me, please post a message below the line (BTL) or message me on social media. I can’t read all the messages BTL, but if you put “Andrew” in a message aimed at me, I am more likely to see it because I search for posts containing that word.

If you want to flag something up urgently, it is best to use social media. I’m still using X and I’ll see something addressed to @AndrewSparrow very quickly. I’m also trying Bluesky (@andrewsparrowgdn) and Threads (@andrewsparrowtheguardian).

I find it very helpful when readers point out mistakes, even minor typos (no error is too small to correct). And I find your questions very interesting too. I can’t promise to reply to them all, but I will try to reply to as many as I can, either BTL or sometimes in the blog.

Updated

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