‘“Starmer the farmer harmer”: the placards sported by the army of angry landowners who rolled into Westminster last Tuesday sent a clear message to the prime minister, albeit while he was out of the country.
By Thursday, the Treasury was hinting at a retreat, albeit a very modest one, on its plans to levy inheritance tax on larger estates, mooting a transitional regime for the oldest farmers, who may not have time to organise their affairs.
Meanwhile, the Bank of England governor, Andrew Bailey, fresh from wading into the future of EU relations, said retailers were right to warn of job losses as a result of Rachel Reeves’s £25bn national insurance contributions (NICs) increase. Scores of companies had written to the chancellor to plead their case.
The noisy protests and hurried government consultations conjured botched budgets of the past – George Osborne’s omnishambles in 2012, with its pasty and caravan taxes; Gordon Brown’s abolition of the 10p tax rate in 2007, which Alistair Darling later had to paper over.
Yet inside the Treasury, the sense is that the budget landed as well as could have been expected, given that it will raise £40bn in tax.
Some backlash was inevitable, the Treasury believes, given the historic scale of the revenue-raising measures. But Labour focus groups carried out on budget day and repeatedly since have suggested that while they aren’t cheering the tax rises, voters are mainly relieved that they won’t be hit directly via their payslips.
Government strategists were struck by how positive voters were about the increase in the minimum wage – which benefits 3 million people – and plans for higher spending on the NHS. In particular, the “hero voters” they are fixated with, including Tory-to-Labour switchers they are keen to hang on to at a future general election, apparently liked what they saw.
That long summer pause, after Reeves issued a gloomy warning about the £22bn “black hole” she had uncovered in the public finances, is blamed by business groups for holding back investment and depressing confidence for months. Even Labour’s supporters spent a queasy few weeks contemplating the cut to the winter fuel allowance and wondering what fresh horrors loomed.
But in the minds of Labour strategists, those bleak weeks were vital pitch-rolling: the public approached the budget expecting the worst.
With no increase in fuel duty (despite the government’s avowed green credentials) and the national insurance increase levied on employers rather than directly on their staff, the bottom line for most voters was: no change.
Labour’s research suggests that voters accept someone had to pay for a much-needed increase in public spending and are glad it wasn’t them, at least not directly.
“People do get this argument that NICs will be felt in other ways. But where that takes you is ‘give them a break, they’ve got to find the money from somewhere’,” says one senior party strategist.
Some insiders believe that even had Reeves not boxed herself in by promising not to raise the three major direct taxes – national insurance, income tax and VAT – there is no democratic consent at this moment for increasing taxes on individuals. They cite populist arguments against spending on areas such as international aid, green projects and the war in Ukraine (Nigel Farage’s Reform party says it would halve international aid spending, for example).
Of course, we can never know how the electorate would have responded to a party that stated clearly in advance that a major uplift in public investment was necessary, and set out how they would pay for it, since Labour didn’t dare try. But Reeves has now made her pitch about who needs to pay and why, and intends to stick to it.
In truth, the biggest threat to this government and its pact with the voters is unlikely to come from any tax backlash – from Jeremy Clarkson, James Dyson or the CBI. Nor is it from the conspiracy-adjacent fad for factchecking Reeves’s CV.
Instead, the real threat lies in the promise of what those taxes, and the increased public sector borrowing, are meant to buy, which is better public services and a stronger economy.
Some of the risks were already evident on the morning after the budget. Public spending totals look eyewateringly tight towards the back end of the parliament, and the government will have to make its money go further to deliver tangible improvements.
Wes Streeting’s plans for NHS revival will be critical. So too will delivery across a whole range of other public services. But even the most optimistic Labour insiders are conscious that they also need to deliver on the promise of stronger economic growth, and here the early omens are unsettling.
GDP apparently contracted in September; the PMIs, which measure business sentiment, slipped into the red this month, with some quick to blame the budget. Inflation is drifting up. Business groups are poised to blame the government for clobbering them with extra costs.
Labour has big plans for growth, but many of the major structural changes it has promised – on planning, infrastructure, industrial strategy, labour market reform, devolution – are yet to be fully fleshed out. It is early days, and yet, given how long reforms like these need to take effect, time is so short.
Similarly, the limited nature of changes to the UK-EU relationship envisaged in Labour’s manifesto means that they would be likely to have little impact on growth. Reeves has sometimes appeared to hint at something more ambitious, involving aligning with EU rules in key sectors.
Without early dividends from its reforms, whether Labour is given the benefit of the doubt to crack on with “fixing the foundations”, as Starmer loves to call it, may well depend on what happens to economic growth and living standards in the shorter term.
And that is far from entirely in Labour’s hands. The jolt to public spending should shore up growth in the coming months, but Donald Trump’s imminent arrival in the White House is causing angst among policymakers, the geopolitical outlook is distinctly shaky and the EU economy, still the UK’s biggest trading partner, looks fragile.
Labour has a story to tell about the budget, which it is rightly sticking to. But it will be harder to shape the narrative if the longed-for growth fails to materialise. As Trump prepares to arrive in the White House, a perilous period lies ahead.
